Key Points
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The Nasdaq Composite bounced back impressively after last year’s tariff-induced sell-off, and it can repeat that feat once again.
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Seagate Technology is benefiting from AI-fueled storage demand, as evidenced by phenomenal growth in revenue and earnings.
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Seagate has the potential to become a multibagger, which is why investors can consider buying it following its recent slide.
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Technology stocks have been crushed lately, which explains why the tech-laden Nasdaq Composite (NASDAQINDEX:^IXIC) index has slid by more than 5% since the beginning of October.
The meltdown in tech stocks can be attributed to several factors. From the Federal Reserve’s interest rate hike in September to the likelihood of further rate hikes to control inflation to the outcome of the midterm elections, investors have become risk-averse. They are booking profits in tech stocks following a strong run over the past year and a half.
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However, what’s worth noting is that this isn’t the first time the Nasdaq Composite index has witnessed such volatility.
Image source: Getty Images.
The Nasdaq jumped impressively after last year’s tariff-induced sell-off
The tariffs announced by President Donald Trump last year crushed tech stocks. Investors panicked amid fears that the proposed tariffs would hurt demand for chips, components, smartphones, and other things. As a result, the Nasdaq Composite slid 10% between February and April 2025. In fact, the index was down over 20% at one point in early April 2025, compared with the beginning of February.
However, the artificial intelligence (AI) gravy train shielded tech companies from any potential slowdown. This explains why the Nasdaq Composite has rallied by an impressive 44% over the past year and a half despite the recent setback. I won’t be surprised to see history repeat itself, as AI’s productivity gains and healthy investments in this space will ensure robust earnings growth for tech companies.
For instance, a survey conducted by the consulting giant McKinsey earlier this year found that 80% of respondents who use AI at work reported higher productivity. Meanwhile, 50% of the respondents admitted that AI is improving their decision-making capability. As a result, the adoption of AI and AI agents in enterprises is growing.
This is great news for Seagate Technology (NASDAQ:STX), which is benefiting big time from AI adoption and has seen a substantial slide in its stock price lately.
AI hardware spending will ensure solid growth for Seagate
The past three months have been brutal for Seagate stock investors. It has lost 31% of its value over this period. However, the company is capitalizing on the deployment of AI data centers.
Seagate manufactures data storage solutions, including hard-disk drives (HDDs), solid-state drives (SSDs), and high-capacity storage solutions for enterprises and data centers. The company’s storage solutions have been supporting the global AI boom, helping hyperscalers and AI labs store massive data sets for training AI models and running inference applications.
Not surprisingly, Seagate has been enjoying stunning growth. The company’s revenue in the first quarter of fiscal 2027 (which ended on Oct. 2) jumped 61% year over year to $4.23 billion. Meanwhile, the strong demand and short supply of HDDs sent Seagate’s non-GAAP operating margin to 50.7% in the previous quarter, up from 29% in the year-ago period. The company’s earnings per share (EPS) nearly tripled year over year to $7.68.
The data center business accounted for 81% of the top line, up 63% from the year-ago period. Seagate is confident of maintaining its impressive momentum. The company will finalize the configuration and pricing for its 2028 storage devices over the next few quarters, noting that the pricing environment continues to improve.
What’s more, Seagate management noted on the latest earnings call that it expects further expansion in revenue and margins this year, driven “by an extremely strong demand environment with visibility extending beyond 2030.” The company’s guidance reflects management’s claim.
Seagate expects $4.8 billion in revenue in the current quarter, implying a 70% jump over last year. Even better, its EPS is poised to nearly triple once again to $9.20. Given that Seagate sees strong demand visibility through the end of the decade, it is easy to see why analysts are projecting healthy EPS growth over the next three years.
STX EPS Estimates for Current Fiscal Year data by YCharts
Specifically, Seagate’s earnings are predicted to jump by 157% this year, and I won’t be surprised to see it outperform expectations over the next couple of years. Moreover, Seagate trades at just 14.6 times forward earnings, a discount to the tech-laden Nasdaq-100 index’s forward earnings multiple of 20. Assuming Seagate trades in line with the Nasdaq’s forward earnings multiple after three years and its EPS jumps to $87.28, its stock price will skyrocket to $1,745.
That’s just over 3x where this AI stock is trading right now. So, buying Seagate right now could be a profitable move, especially given that a potential rally in the Nasdaq Composite next year could lift the stock out of its rut and send it on a bull run.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
