Investing.com -- JPMorgan on Monday initiated coverage of Seagate Technology with an Overweight rating and a year-end price target of $525, arguing the hard-disk drive (HDD) maker’s shares still have room to run even after surging roughly 350% since early 2025, compared with an 11% gain for the S&P 500 over the same period.

The bank set its price target using a 22x multiple on its 2027 earnings-per-share (EPS) estimate of $23.45, implying about 39% upside from Seagate’s closing price on Friday.

"Our financial forecasts imply upside to CY27 consensus estimates, with further opportunity for upside from a stronger pricing than the stable to modest increases embedded in our forecasts, as well as upside to the target valuation multiple on lower concerns around the sustainability of the capex cycle," analysts led by Samik Chatterjee said.

The team said the valuation is conservative relative to the roughly 25x average multiple for AI-levered suppliers, and that they see further upside if cloud spending visibility improves or pricing comes in stronger than assumed.

The bull case rests on two pillars - surging demand driven by hyperscaler AI infrastructure spending, and a pricing environment that analysts believe is structurally better than anything the hard-disk drive industry has seen in years.

The bank forecasts storage exabyte growth in the mid-20% range annually, up from a low-teens historical rate, as AI workloads drive datacenter storage needs sharply higher.

"We forecast a 25% revenue CAGR and a 50%+ operating earnings CAGR over the medium-term, which we believe justifies the re-rating of STX shares," the analysts wrote.

A key part of the thesis is the oligopolistic structure of the HDD market, where Seagate and Western Digital together control roughly 80-90% of supply. Both companies have committed to growing capacity through higher-density drives rather than adding unit shipments, which should support pricing discipline and margin expansion, the analysts said.

JPMorgan projects gross margins reaching 50% by the end of 2027, versus a historical range of 25-30%.

Seagate’s transition to heat-assisted magnetic recording, or HAMR, is another catalyst. The company has qualified its Mozaic 4 platform — capable of roughly 40 terabytes per drive — with a second customer, and the bank expects the faster-than-anticipated HAMR adoption to support further upside to exabyte growth targets.

Risks to the outlook include a slowdown in cloud capital spending, capacity constraints, and a faster-than-expected shift by customers toward flash-based storage as NAND prices moderate.