Seagate Technology's Q1 fiscal quarter revenue grew 61% year-over-year, with free cash flow and gross margin both hitting record highs

Seagate Technology reported a sharp increase in first-quarter profit, as AI infrastructure buildout continues to drive demand for the company's data storage components.

After the U.S. market close on October 27, Seagate Technology reported financial results for the first quarter of fiscal 2027 ended October 2, 2026, with revenue reaching $4.23 billion, up about 61% year over year and beating the average analyst estimate of $4.11 billion; adjusted earnings per share were $7.68, also exceeding the expected $7.39. The company also raised its quarterly dividend by about 3% to $0.76 per share.

On guidance, Seagate expects second-quarter revenue of $4.8 billion, plus or minus $100 million, and adjusted earnings per share of $9.20, plus or minus $0.20, both significantly above analysts' prior expectations of $4.55 billion in revenue and $8.66 in earnings per share.

CEO Dave Mosley said that the creation, retention and reuse of data continue to drive compounding growth in storage demand, and that customers' long-term demand visibility supports the company's view of a multi-year growth cycle.

Despite results and guidance broadly beating expectations, Seagate shares fell as much as 8% in after-hours trading. During the regular session, the stock had risen 3.7% to close at $667.85. Year to date, Seagate shares have gained nearly 150%, making the market's bar for continued beats even higher.

HAMR and Mozaic roadmaps become key words for long-term growth

Seagate mentioned its HAMR technology roadmap multiple times in the earnings report. HAMR, or heat-assisted magnetic recording, is an important path to increasing hard drive areal density and continuing to push up per-drive capacity. The company also mentioned its HAMR-based Mozaic products in its forward-looking statements.

Dave Mosley said the company's HAMR technology roadmap can meet growing exabyte demand by increasing areal density while maintaining supply discipline.

He emphasized that, combined with a value-oriented pricing strategy and a continuously strengthening balance sheet, Seagate is positioned to achieve long-term earnings growth, strong cash generation and continuously improving shareholder returns.

In the AI and cloud infrastructure cycle, the market usually focuses more on GPUs, HBM and networking equipment, but back-end data storage also benefits as data scales expand. Seagate's significant margin improvement this quarter shows that the economic value of high-capacity HDDs in data center architectures remains intact.

Gross margin rises above 57%, operating margin jumps

The most notable development this quarter was the jump in gross margin and operating margin.

In the first fiscal quarter, Seagate's GAAP gross margin was 57.3%, compared with 39.4% a year earlier, up 17.9 percentage points year over year; non-GAAP gross margin was 57.8%, compared with 40.1% a year earlier. That means nearly $0.58 of every $1 of revenue converted into non-GAAP gross profit.

The increase in operating margin was equally pronounced. GAAP operating income was $2.064 billion, compared with $694 million a year earlier; GAAP operating margin rose from 26.4% to 48.8%. Non-GAAP operating income was $2.147 billion, with a non-GAAP operating margin of 50.7%, compared with only 29.0% a year earlier.

The key behind this is that costs grew far more slowly than revenue. In the first fiscal quarter, Seagate's revenue grew 61% year over year, but cost of revenue rose only from $1.592 billion to $1.806 billion, an increase of about 13%. At the same time, GAAP operating expenses excluding cost of revenue were $363 million, compared with $343 million a year earlier, a limited increase.

In other words, when demand rises, Seagate's expenses and manufacturing costs did not expand sharply in tandem, creating significant profit leverage.

Free cash flow approaches $1.5 billion, cash conversion capacity strengthens markedly

Seagate's first-quarter operating cash flow was $1.690 billion, compared with $532 million a year earlier; free cash flow was $1.479 billion, compared with $427 million a year earlier, up about 246% year over year.

The free cash flow margin this quarter was about 35%, and free cash flow was about 84% of GAAP net income, indicating high-quality cash conversion. Although accounts receivable increased by $283 million and inventory increased by $129 million, tying up some working capital, the company still generated strong operating cash flow, indicating solid profit quality.

On capital expenditure, cash spending on purchases of property, equipment and leasehold improvements was $211 million, compared with $105 million a year earlier, nearly double. Despite the increase in capital expenditure, it remains manageable relative to a revenue scale of more than $4.2 billion.

This also aligns with Seagate's current strategy: continue investing in high-capacity and HAMR-related roadmaps during the demand improvement phase, but avoid undisciplined expansion to prevent a repeat of the supply glut cycles common in the storage industry in the past.

Q2 guidance stronger: revenue midpoint $4.8 billion, non-GAAP EPS points to above $9

Seagate expects second-quarter fiscal 2027 revenue of $4.8 billion, plus or minus $100 million; non-GAAP diluted EPS of $9.20, plus or minus $0.20.

Compared with first-quarter actuals:

The revenue guidance midpoint represents about 13% sequential growth from $4.233 billion;

The non-GAAP EPS guidance midpoint represents about 20% sequential growth from $7.68.

This guidance shows that the company expects the demand improvement trend to continue and that profit expansion may continue to outpace revenue growth. Although the company did not provide gross margin guidance for the next quarter, the EPS guidance implies still-strong operating profit leverage.

It should be noted that the company said its non-GAAP EPS guidance excludes the impact of known pre-tax stock-based compensation expense, equivalent to about $0.30 per share. Other items that could affect GAAP results, such as gains or losses on debt transactions, gains or losses on strategic investments, impairments, and tax adjustments, cannot currently be reasonably predicted. Risk disclosure and disclaimer

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