STX Stock Slips Despite Q1 Beat, Dividend Hike — Analyst Flags Slowing Margin Growth

• Seagate’s Q1 revenue rose over 60%, beating analysts' expectations.
• Current quarter sales and profit guidance were better than expected.
• Retail sentiment for STX flipped to ‘bullish’ from ‘bearish’ the previous day, with traders expecting a quick recovery in the stock.

Seagate Technology (STX) shares fell 6% in overnight trading late Tuesday despite the data storage company reporting fiscal first-quarter results above expectations and issuing a strong forecast. Seagate also increased its quarterly dividend.

Although STX shares, like other AI-linked stocks, have come under pressure in recent weeks, they remain up 143% year to date. The latest pullback mirrors the reaction to peer Western Digital’s (WDC) upbeat results last week. Still, retail sentiment for STX on Stocktwits improved sharply, with many traders expecting a quick rebound.

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Fiscal Q1 wasn’t as strong as the just preceding quarter in certain aspects, Wedbush Securities analyst Matt Bryson said in a CNBC interview. “The second thing is, as far as gross margins go, the implied guide is about 60%, which suggests that gross margin growth is slowing.”

Bryson added that the perceived slowdown is cyclical. 

Seagate’s Q1 Report Recap

Revenue rose to $4.23 billion from $2.63 billion a year prior, ahead of analyst expectations for $4.15 billion from FactSet. On an adjusted basis, earnings were $7.68 a share, beating the $7.45 a share expected by analysts.

“Data creation, retention and reuse continue to compound storage demand with long term customer demand visibility reinforcing our view of a multiyear growth phase,” CEO  Dave Mosley said.

For the current second quarter, the company guided for adjusted earnings between $9.00 and $9.40 a share on revenue between $4.7 billion and $4.9 billion. Analysts were expecting adjusted earnings of $8.66 a share on $4.55 billion in revenue.

Seagate lifted its quarterly dividend by 2.7% to $0.76, up from $0.74, payable in January to stockholders of record as of Dec. 23.

Seagate Holds Strong Long-term View 

On the analyst call, Mosley said Seagate's long-term view is supported by an extremely strong demand environment “with visibility extending beyond 2030 and an aerial density-driven technology road map poised to capture this growth."

He said that the vast majority of our near-term supply is allocated under long-term supply agreements through calendar 2028, with some cloud customer agreements extending through calendar 2030.

"Advancing aerial density is our North Star,” he said. “We are scaling drive capacity through aerial density rather than relying on higher drive unit production. We believe that this is the most efficient way to help customers manage their extreme data growth and retention needs." 

Retail View On STX

On Stocktwits, retail sentiment for STX flipped to ‘bullish’ from ‘bearish’ the previous day. “$STX I bought that dip -- tomorrow it'll rip,” said a trader.

Another wrote: “$STX time to buy. The pattern with all things AI is to punish great news so the big boys can steal your shares for cheap and then let it run back up. Look at WDC which got pummeled after a phenomenal report and is already back on the rise. The memory cycle is still in the first inning. We have a very long way to go and I don’t expect we will ever return to the bad old days of boom and bust.”

South Korea memory major SK Hynix, too, reported upbeat quarterly results in late hours on Tuesday. Its shares gained over 2% in overnight trading.

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