The data storage market has huge growth opportunities thanks to catalysts such as AI, and this company is all about data storage.
Goldman Sachs recently released a report estimating that the global cloud computing market could generate a staggering $2 trillion in revenue by 2030. The report predicts that this market is expected to grow at an average annual growth rate of 22% by the end of the 2010s, driven by new catalysts such as: Because artificial intelligence (AI) will play a central role in that growth.
Many companies are already taking full advantage of the surge in spending from cloud service providers. Chipmakers like Nvidia, Broadcom, and Marvell Technology have reported impressive data center revenue growth thanks to strong demand for AI accelerators. Memory experts, as AI servers require faster memory chips and more storage capacity, and similar trends are playing out in AI-enabled edge devices such as smartphones and personal computers (PCs). Micron Technology (NASDAQ: MU) also participated.
Another company likely to jump on the AI bandwagon thanks to potentially lucrative growth in the global storage market is Seagate Technology (STX -1.43%).
Here are some reasons why Seagate stands to benefit long-term from significant growth in the AI-powered storage market.
Seagate Technology is entering a huge market
Fortune Business Insights estimates that the data storage market will be worth $217 billion in 2022, registering an annual growth rate of 18% through 2030, and could generate $778 billion in revenue by the end of the forecast period. I’m doing it. Additionally, recent results from Micron Technology reveal that the prevalence of AI is driving growth in data center storage.
Specifically, Micron’s revenue from sales of solid-state drives (SSDs) for data centers more than tripled in the previous fiscal year. Micron also points out that traditional storage markets such as PCs will see significant growth thanks to AI. CEO Sanjay Mehrotra said in the latest earnings call:
As an example, a major PC OEM recently announced AI-enabled PCs with a minimum of 16 GB of DRAM for the value segment and 32 GB to 64 GB of DRAM for the mid and premium segments. By comparison, the average content across all PCs last year was about 12 GB.
Seagate Technology is one way investors can take advantage of this huge opportunity. The company sells hard disk drives (HDDs) and SSDs for data centers and PCs, and recent results show it’s starting to benefit from growth in the storage market.
Seagate’s revenue for the fourth quarter of fiscal 2024 (ending June 28) was $1.89 billion, an 18% increase from the same period last year. The company’s gross profit margin improved to 30.9% from 19.5% in the same period last year. As a result, Seagate earned non-GAAP earnings of $1.05 per share, compared with a loss of $0.18 per share in the prior year period.
Analysts had expected Seagate to report revenue of $1.87 billion and earnings per share of $0.76. However, favorable pricing conditions in the memory market worked in Seagate’s favor, dashing Wall Street’s earnings expectations. Even better, the company’s fiscal 2025 first-quarter outlook points to a significant acceleration in growth.
Seagate estimated first-quarter revenue of $2.1 billion, a 45% increase from the same period last year. Additionally, the company expects to report earnings of $1.40 per share for the current quarter, compared to a loss of $0.22 per share in the year-ago period. The good news is that Seagate is expected to maintain its impressive growth through fiscal 2025, according to analyst forecasts.
STX EPS estimates for current year data by YCharts.
The top dollar could represent a significant improvement from the 2024 level of $6.5 billion, an increase of 40%. For comparison, Seagate’s fiscal 2024 revenue was down 11%, but it reported adjusted earnings of $1.29 per share. That means the company’s revenue is poised to jump five times this fiscal year.
More importantly, Seagate is likely to maintain healthy growth levels over the long term, as it has already begun to benefit from the growth in AI-driven demand for storage solutions. Seagate CEO William Mosley said in a July earnings call:
We’re also starting to see an increased demand for denser storage-specific solutions as enterprises deploy storage capacity on-premises or in private clouds for future AI applications.
So it’s no surprise that Seagate’s stock price is headed higher in 2024 after already rising 27%.
Valuation and share price appreciation potential make this stock a no-brainer to buy
As mentioned, Seagate’s revenue is expected to increase significantly this year. Analysts expect the company’s bottom line to rise another 36% to $9.09 per share next year. Seagate stock currently trades at 17 times forward earnings, lower than the 32 times price-to-earnings ratio of the Nasdaq 100 index, which is used as a proxy for tech stocks.
Assuming Seagate trades at 17 times forward earnings in a few years and actually generates earnings of $9.09 per share, as analysts expect, its stock price could reach $154. This indicates an expected increase of 42% over the next few years. This makes Seagate an attractive stock to buy now to take advantage of long-term growth in the storage market thanks to catalysts such as AI.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
