The info storage market has large progress alternatives thanks to catalysts similar to AI, and this firm is all about knowledge storage.
Goldman Sachs not too long ago launched a report estimating that the worldwide cloud computing market might generate a whopping $2 trillion in income in 2030. The report initiatives this market will see a compound annual progress fee of twenty-two% by way of the tip of the last decade, with new catalysts similar to synthetic intelligence (AI) set to play a central function in its progress.
Loads of corporations are already taking advantage of the surge in spending by cloud service suppliers. Chipmakers like Nvidia, Broadcom, and Marvell Expertise reported spectacular progress in their knowledge middle income, thanks to the strong demand for his or her AI accelerators. Reminiscence specialist Micron Expertise (NASDAQ: MU) also joined the party as AI servers require quicker reminiscence chips and extra storage capability, and an analogous development is unfolding in AI-enabled edge units similar to smartphones and private computer systems (PCs).
One other firm that appears set to leap on the AI bandwagon thanks to the possibly profitable progress in the worldwide storage market is Seagate Expertise (STX -1.43%).
Listed below are some the reason why Seagate is positioned to profit long-term from the large AI-fueled surge in the storage market.
Seagate Expertise is sitting on an enormous addressable market
Fortune Enterprise Insights estimates the information storage market was price $217 billion in 2022, and it might clock an annual progress fee of 18% by way of 2030 to generate $778 billion in income on the finish of the forecast interval. Moreover, Micron Expertise’s current outcomes have made it clear that AI’s proliferation is driving progress in knowledge middle storage.
Extra particularly, Micron’s income from gross sales of knowledge middle solid-state drives (SSDs) greater than tripled in the earlier fiscal 12 months. Micron additionally factors out that conventional storage markets similar to PCs are set to get a pleasant enhance thanks to AI. As CEO Sanjay Mehrotra remarked on the most recent earnings convention name:
For instance, main PC OEMs have not too long ago introduced AI-enabled PCs with a minimal of 16GB of DRAM for the worth phase and between 32GB to 64GB for the mid and premium segments, versus a mean content material throughout all PCs of round 12GB final 12 months.
Seagate Expertise is without doubt one of the methods traders can capitalize on this large alternative. The corporate sells laborious disk drives (HDDs) and SSDs for knowledge facilities and PCs, and its current outcomes present that it has began benefiting from the expansion of the storage market.
Seagate’s income in the fourth quarter of fiscal 2024 (which ended on June 28) elevated 18% 12 months over 12 months to $1.89 billion. The corporate’s gross margin improved to 30.9% from 19.5% in the identical quarter final 12 months. In consequence, Seagate swung to a non-GAAP revenue of $1.05 per share, in contrast to a lack of $0.18 per share in the prior-year interval.
Analysts had been anticipating Seagate to submit earnings of $0.76 per share on $1.87 billion in income. Nonetheless, a good pricing setting in the reminiscence market labored in Seagate’s favor, and it crushed Wall Road’s earnings expectations. Even higher, the corporate’s steerage for the primary quarter of fiscal 2025 factors towards a big acceleration in its progress.
Seagate guided for $2.1 billion in income for fiscal Q1, which might be a forty five% enhance over the year-ago interval. Moreover, the corporate expects to report a revenue of $1.40 per share for the quarter, in contrast to a lack of $0.22 per share in the year-ago quarter. The nice half is that Seagate is predicted to preserve its excellent progress all through fiscal 2025, as per analysts’ estimates.
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STX EPS Estimates for Current Fiscal Year knowledge by YCharts.
The highest line can be an enormous enchancment from fiscal 2024 ranges of $6.5 billion, translating into a possible leap of 40%. For comparability, Seagate’s income fell 11% in fiscal 2024, whereas it reported adjusted earnings of $1.29 per share. So, the corporate’s earnings are on observe to leap 5x in the present fiscal 12 months.
Extra importantly, Seagate can be doubtless to maintain its wholesome progress ranges in the long term, because it has already began benefiting from the AI-driven progress in demand for storage options. On its July earnings conference call, Seagate CEO William Mosley remarked:
We have additionally began to see incremental demand for higher-density storage-specific options, due in half to enterprises placing storage capability in place, both on-prem or in non-public clouds, as they put together for future AI purposes.
As such, it will not be shocking to see Seagate inventory heading increased following the 27% positive aspects it has already had in 2024.
The valuation and the potential inventory upside make shopping for this inventory a no brainer
As already famous, Seagate’s earnings are anticipated to multiply considerably this 12 months. Analysts forecast that the corporate’s backside line will leap one other 36% in the following fiscal 12 months, to $9.09 per share. Seagate inventory at present trades at 17 instances ahead earnings, a reduction to the Nasdaq-100 index’s price-to-earnings ratio of 32 (utilizing the index as a proxy for tech shares).
Assuming Seagate trades at 17 instances ahead earnings after a few years and certainly generates $9.09 per share in earnings as analysts anticipate it to, its inventory worth might hit $154. That factors towards a possible upside of 42% over the following couple of years. This makes Seagate a sexy inventory to purchase proper now to capitalize on the secular progress of the storage market, thanks to catalysts like AI.
Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot recommends Broadcom and Marvell Expertise. The Motley Idiot has a disclosure policy.