Seagate Technology has a "more attractive multiyear earnings story" as the hard disk drive market crawls out of a nearly two-year downcycle, according to an analyst upgrade on Tuesday. Seagate stock jumped on the positive report.
Morgan Stanley analyst Erik Woodring upgraded Seagate shares to a positive overweight rating in a new client note. Morgan Stanley also upped its price target for Seagate stock to $115 from $73.
With the market for hard disk drives improving, Woodring says his analysis focused on longer-term factors for Seagate stock. That includes a ramp up for Seagate's Heat-Assisted Magnetic Recording, or HAMR, technology in hard drives.
Further, the Morgan Stanley analyst said generative artificial intelligence could eventually prove a tailwind for hard drives.
"A cyclical recovery, tech leadership (HAMR), and the potential for Gen AI-related demand means STX is entering a period of structurally stronger gross margins," Woodring wrote.
On the stock market today, Seagate stock gained 7.4% to close at 94.72.
Seagate's AI Lift
While Woodring has a positive view on Seagate's generative artificial intelligence prospects, he said there is some debate about the overall AI tailwind for hard disk drives.
"While Gen AI's impact on HDD demand remains a debate amongst investors — with many believing the majority of value will accrue to flash storage over time — we believe that more data created, retained and stored will be a 'rising tides lifts all boats' dynamic for the storage industry," Woodring wrote.
Still, Woodring wrote that he does not expect AI to have a major impact on hard disk drives shipped by Seagate before fiscal year 2026 (Seagate's fiscal year ends with June. It's currently in fiscal 2024).
Seagate Stock: Up Nearly 20% This Year
Seagate stock has gained nearly 20% this year, including Tuesday's jump. Shares are also up 60% over the past 12 months.
Seagate struggled in 2022 and for much of last year, amid a hard drive supply glut and slowing demand. The company is still chasing a high near 116 that its shares reached at the start of 2022.
To that point, IBD Stock Checkup showed STX stock with a dismal EPS Rating of 11 out of a best-possible 99, representing its earnings slowdown.
But investors appear optimistic about improvements for the stock. Seagate's Relative Strength Rating checks in at 85 out of a best-possible 99. The score indicates STX stock has outperformed 85% of the market over the past 12 months.
Those scores contribute to an IBD Composite Rating of 70 out of a best-possible 99.
