Western Digital CorporationWDC has delivered another strong quarter, reinforcing the view that the HDD market is entering a powerful AI-driven growth cycle. Revenue, margins and earnings all showed substantial year-over-year improvement in the fiscal fourth quarter, while its outlook for first-quarter fiscal 2027 points to continued strength.
In April, management had projected revenue of approximately $3.65 billion, non-GAAP gross margin of 51-52% and adjusted EPS of $3.25 at the midpoint. The company exceeded those expectations as revenue reached around $3.75 billion, up 44% year over year, while adjusted EPS came in at about $3.56. Gross margin also expanded sharply, reaching approximately 54.1%. The uptrend represents another major step-up in the company's post-Flash-spinoff trajectory to Sandisk CorporationSNDK. Higher-capacity drives, strong data-center demand and improved product mix are allowing WD to generate substantially better profitability.
WDC shares have gained 477.4% in the past year, outperforming the Zacks Computer-Storage Devices industry’s rise of 346.5%. The stock has also outpaced the Zacks Computer & Technology sector and the S&P 500’s growth of 29.6% and 22.7%, respectively.
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The company has outperformed its competitors in the storage space, like Seagate Technology Holdings plc STX, Everpure P and NetApp, Inc. NTAP. P, STX and NTAP have gained 64.9%, 414.8% and 84.4% during the same time frame.
WDC boasts a 52-week high of $799.87. The key question for investors is no longer whether AI is benefiting Western Digital but whether the company’s improving fundamentals can continue to support further gains in WDC stock after expectations have already risen significantly.
Let’s find out.
AI Storage & Data Centers are the Key Growth Engine for WDC
AI creates data. Data requires storage. Storage requires capacity. AI workloads, cloud services and data-intensive applications such as autonomous vehicles and robotics are driving storage demand. As continuous data generation accelerates, particularly from inference and agentic AI, the need for cost-effective, high-capacity storage is increasing, favoring HDDs for large-scale data storage. That dynamic creates a potentially durable opportunity for HDD manufacturers such as WD and Seagate.
Management emphasized sustained cloud and AI-driven storage demand, with long-term agreements being discussed through 2031. Western Digital is ramping 40TB ePMR drives and targeting 44TB HAMR shipments in the first half of fiscal 2027. The company is also ramping UltraSMR technology, expecting it to comprise 60% of nearline shipments by fiscal 2027. WDC's transformation has increasingly centered around hyperscale and cloud customers. During fiscal 2026, it consistently reported accelerating demand from data centers. The industry remains reliant on HDDs for large-scale storage, with 80% of data in hyperscale centers stored on HDDs.
Another encouraging signal for WDC investors is its first-quarter fiscal 2027 guidance, which reinforces the bullish outlook. The margin outlook is particularly noteworthy. A move toward the mid-50% range would represent a dramatic improvement from the profitability levels WDC generated earlier in the fiscal year. Higher margins mean that incremental revenue can translate into disproportionately stronger earnings and cash flow.
WDC’s Financial Discipline Remains a Competitive Advantage
WDC’s quarterly results and outlook highlighted improving margins, strong cash flow, ongoing shareholder returns and a focus on predictable pricing as it transitions to higher-capacity drives. The company maintains a focus on returning free cash flow via share repurchases and dividends.
WDC generated $1.4 billion in operating cash flow and $1.3 billion in free cash flow, a strong 34% margin. It also returned capital through $1 billion in share repurchases and $54 million in dividends. After monetizing its remaining SanDisk stake, WDC ended the quarter with $1.6 billion in cash, $1.1 billion in debt and a $500 million net cash position.
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The AI storage trend is compelling but carries risks, including hyperscaler spending slowdowns, HDD cyclicality, SSD competition, elevated investor expectations, tariffs and trade restrictions, supply-chain challenges, customer concentration, competitive pressures and broader economic uncertainty, which could weigh on WDC’s long-term prospects.
Elevated Estimate Revision Trend for WDC
Western Digital’s estimate revisions are on an upward trajectory currently. The Zacks Consensus Estimate for its earnings for fiscal 2027 has been revised north by 5% to $18.85 over the past 60 days, while the same for fiscal 2028 has gone up 17.8% to $35.48.
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Valuation Vulnerabilities
Going by the price/sales ratio, the company’s shares currently trade at 7.99 forward sales compared with 3.02 for the industry.
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In comparison, the forward 12-month price/sales multiple for STX, P and NTAP are 9.21X, 6.69X and 5.13X, respectively.
Can AI Fuel More Gains for WDC Stock?
Western Digital appears well-positioned to capitalize on the long-term expansion of the global data economy. The company's 44% revenue growth, strong margins and robust outlook show that AI infrastructure spending is translating into tangible financial benefits. WDC has the potential for further gains if AI-driven data-center demand remains strong and the company continues expanding its earnings power. However, after such a substantial improvement in fundamentals, investors should also expect greater volatility.
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