Western Digital Corporation WDC has entered fiscal 2027 with a favorable combination of strong storage demand, improving pricing and better visibility across its key end markets – Cloud, Consumer and Client. Its latest performance suggests that the recovery in its HDD business is gaining broader momentum, while the rapid expansion of AI and cloud infrastructure is creating a structural driver of demand for high-capacity storage.
Cloud is the centerpiece of WDC’s growth strategy. In the fourth quarter of fiscal 2026, cloud revenue accounted for 89% of total revenue. It rose 43% year over year to $3.3 billion, driven by strong demand for higher-capacity nearline drives and a more favorable pricing environment. Improving pricing is also helping WDC translate stronger storage volumes into better profitability. WDC reported a non-GAAP gross margin of 54.4%, up 1,310 basis points (bps) year over year. Higher-capacity drive sales, improved pricing and manufacturing discipline boosted results, with the average price per terabyte increasing from the high single digits to the high teens year over year. If WDC can maintain pricing discipline while continuing to introduce higher-capacity products, margin expansion could remain an important earnings catalyst.
Although Cloud remains dominant, WDC is seeing encouraging trends across its other end markets. Revenues from the Client end market were up 61% year over year, while the Consumer end market rallied 38%. Both markets benefited from stronger exabyte growth and improved pricing. Fueled by robust demand, improving long-term visibility and favorable pricing across its end markets, WDC anticipates first-quarter fiscal 2027 revenues of $4.1 billion (+/- $100 million), up 45% year over year.
However, competition is another consideration. Seagate TechnologySTX remains a formidable rival, particularly in high-capacity HDDs and emerging HAMR technology. Any improvement in competitors' supply or technology could put pressure on pricing.
Can WDC Outpace Seagate and Other Storage Rivals?
Seagate is banking on strong data center demand, HAMR adoption and pricing discipline. Management expects cloud spending and AI-led storage demand to remain healthy. Demand visibility remains strong, with most nearline capacity allocated through 2028 and customer commitments extending into 2029. Seagate expanded non-GAAP gross margin for the 13th consecutive quarter as fiscal fourth quarter non-GAAP gross margin reached 52.7%, up 1,480 bps year over year. Driven by HDD demand, AI adoption, the Mozaic rollout and disciplined pricing, it expects fiscal first-quarter revenue at $4.1 billion (+/-100 million), up 56% year over year at the midpoint.Â
Super Micro Computer SMCI profitability continues to vary sharply with customer and product mix. Non-GAAP gross margin rose to 17.6% in fourth-quarter fiscal 2026 from 10.1% in the prior quarter, but management said about 75% of the sequential improvement came from favorable mix, including contracts that shifted into fiscal 2027. Lower tariff costs and inventory reserves accounted for the rest. For first-quarter fiscal 2027, management expects gross margin of only 10.4% to 10.8%, indicating that the fourth-quarter level is not expected to persist. AI solutions accounted for approximately 60% of revenues compared with more than 80% in the prior quarter, primarily because of the timing of large AI project ramps.
Going by the price/earnings ratio, the company’s shares currently trade at 23.62 forward earnings compared with 10.03 for the industry.
Image Source: Zacks Investment Research
WDC’s estimate revisions are currently on an upward trajectory. The Zacks Consensus Estimate for WDC’s earnings for fiscal 2027 has been revised upward by 9.3% to $20.03 over the past 60 days, while the same for fiscal 2028 has gone up 7.6% to $34.74.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Keep it Clean. Please avoid obscene, vulgar, lewd,
racist or sexually-oriented language. PLEASE TURN OFF YOUR CAPS LOCK. Don't Threaten. Threats of harming another
person will not be tolerated. Be Truthful. Don't knowingly lie about anyone
or anything. Be Nice. No racism, sexism or any sort of -ism
that is degrading to another person. Be Proactive. Use the 'Report' link on
each comment to let us know of abusive posts. Share with Us. We'd love to hear eyewitness
accounts, the history behind an article.
(0) comments
Welcome to the discussion.
Log In
Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.