11:58 AM EDT, 03/26/2024 (MT Newswires) -- Seagate Technology ( STX ) is headed for "a period of structurally stronger gross margins" due to a cyclical recovery, its leadership in technology like heat-assisted magnetic recording, or HAMR, and the expected rise in demand for generative artificial intelligence, Morgan Stanley said in a note Tuesday.

Analysts said that after a nearly two-year slowdown, the hard disk drive, or HDD, market is gradually recovering, leading them to believe that Seagate's ( STX ) HAMR technology and the potential growth in AI-driven HDD usage will boost its earnings.

The company's earnings could exceed $10.50 per share in the next three years, which is 25% to 30% higher than Morgan Stanley's previous estimate and more than 10% above the Street's forecasts, the analysts added.

The analysts said they are raising their gross margin forecast for fiscal year 2024 by 0.5%, and for fiscal years 2025 to 2027 by 3% to 5%, and expect the company to achieve a 33% gross margin in fiscal year 2026 and 35% in fiscal year 2027.

While investors debate how much Gen AI will increase demand for HDDs, analysts said they think HDDs will benefit as more data is created and stored.

Morgan Stanley upgraded the data storage company to overweight from equalweight and adjusted its price target to $115 from $73.

Shares of Seagate Technology ( STX ) rose nearly 11% in recent trading Tuesday.

Price: 97.75, Change: +9.54, Percent Change: +10.82