Western Digital
WDC · NASDAQSemiconductors · HDD / Data Storage
Since the Report + 2.0%
Close on Report DayAug 5
$451.52▼ 13.0%Report-Day Move
- Market Cap(Today)
- ≈ $159 B
- 1Y Return(At Report)
- + 495%
- P/E($10.19 · Trailing 12M)
- 45.2
- PEG(forward 12 months)
- 0.46
- Net Margin(Trailing 12M)
- 73.0%
Western Digital grew revenue 44% year over year, widened gross margin by 13.1 points and guided above market expectation for the new quarter — and the stock still fell 13%, because the market is no longer pricing the level of improvement but its speed.
Revenue (Q4)
$3.75B
▲ 44% YoY
Gross Margin (Non-GAAP)
54.4%
+13.1 Pts YoY
EPS (Non-GAAP)
$3.56
7% Above Expectation
Exabytes Shipped
231 EB
▲ 22% YoY
Cloud Revenue
$3.3B
89% of Total
Q1 FY27 Guidance
$4.1B
Margin 55-56%
Quarterly Revenue ($ Billion)
2.61
2.82
3.02
3.34
3.75
$4.0–4.2B
- Q4 FY25
- Q1 FY26
- Q2 FY26
- Q3 FY26
- Q4 FY26
- Q1 FY27
- Annual Growth
- ▲ 44%$2.61B → $3.75B
- Cloud Share
- 89%$3.3B · ▲ 43% YoY
- Consumer · Slowest
- $187M · ▲ 38%~5% of Revenue
Q1 FY27 Company Guidance
- Revenue4.0 – 4.2 billion
Midpoint 4.10 · Market Expectation 4.01Within Range ✓
- EPS3.85 – 4.15 $
Midpoint 4.00 · Market Expectation 3.81Expectation Below Range ▲
- Gross Margin (Non-GAAP)55% – 56%
Midpoint 55.5% · 54.4% in Q4 FY26+1.1 pts Expansion ▲
The blue band is the company's low–high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. Axis is ±5.5% around the midpoint.
- Free Cash Flow (Q4)
- $1.28B34% of Revenue
- Free Cash Flow (FY26)
- $3.51BFY Revenue $12.92B
- Quarterly Dividend
- $0.15Payable September 17, 2026
“WD concluded fiscal year 2026 with strong performance. In our fiscal fourth quarter, revenue increased 44% year over year, gross and operating margins expanded, and earnings per share more than doubled.”
- Demand growth above 25% annually
- Supply agreements extending to 2031
- Neocloud and AI lab customers
Summary
Western Digital reported its fiscal fourth quarter, ended July 3, after the close on August 5. Revenue came in at $3.75 billion, up 44% from a year earlier and 12% from the prior quarter. Non-GAAP earnings per share of $3.56 landed roughly 7% above market expectation and more than doubled year over year, rising 109%. Non-GAAP gross margin reached 54.4%, a 13.1-point improvement on the 41.3% of a year ago. Exabytes shipped rose to 231, and cloud revenue of $3.3 billion accounted for 89% of the total. For the full fiscal year, revenue was $12.92 billion, up 36%, with free cash flow of $3.51 billion.
For the new quarter the company guided to $4.1 billion in revenue, a 55-56% gross margin and $4.00 in earnings per share — all three above market expectation. The stock fell anyway, dropping as much as 16% intraday on August 6 before closing at $451.52, down 13.03%. The Nasdaq 100 was close to flat the same day, so this was not a broad market move. What investors sold was not the quarter but the slope of the improvement: sequential revenue growth steps down from 12% to about 9%, the gross margin gain from 3.9 points to a range of 0.6 to 1.6 points, and sequential earnings growth from 31% to 12%.
It is hard to find a weak spot in the quarter itself. Revenue, earnings and margin all beat, guidance came in above expectation, capacity is sold out in the near term, supply agreements stretch into 2031 and cost per terabyte keeps falling. That is why we do not mark the quarter down for the share price reaction. The reservation is not about the company's performance but about how much of it is already in the price: for a stock that has risen roughly fivefold in twelve months, "beat expectations" is not a complete answer on its own. The quarter scores strongly; when to buy the stock is a separate question, and the risk management guide works through that distinction.
Full Review
ClaudeThe quarter beat on every measure.
Revenue was $3.75 billion against a market expectation of $3.70 billion. Non-GAAP earnings per share came in at $3.56 versus expectations near $3.31 — roughly 7% above — and grew 109% year over year. Non-GAAP gross margin of 54.4% improved 13.1 points from a year ago and 3.9 points from the prior quarter. Operating margin was 44.2% and operating income $1.66 billion. Cash from operations reached $1.39 billion and free cash flow $1.28 billion, meaning $34 of every $100 of revenue converted into free cash. For the full fiscal year, revenue rose to $12.92 billion and non-GAAP earnings per share to $10.22. The company declared a $0.15 per share dividend, payable September 17.
Cloud drives growth, cost per terabyte the margin.
Cloud revenue of $3.3 billion made up 89% of the total and grew 43% year over year. Client contributed $225 million, up 61%, and consumer $187 million, up 38% — together only about a tenth of revenue. Exabytes shipped rose 22% year over year to 231. The real signal sits in the gap between two rates: revenue grew 44% while shipped capacity grew 22%, so roughly half the growth came from price and product mix. On the cost side, cost per terabyte fell about 8% year over year, and CFO Kris Sennesael reiterated the target of roughly 10% annual reduction. In a hard drive maker, margin is exactly what forms between those two curves: selling price up, cost per terabyte down. Sennesael also noted that nearline and non-nearline gross margins have converged to nearly the same level.
Capacity is sold out and agreements reach into 2031.
The company's manufacturing capacity is booked for the near term. Management said it is negotiating long-term supply agreements extending into 2029, 2030 and 2031, which materially lengthens demand visibility. Nearline products carry what the company calls predictable pricing — customers know the price in advance — while faster price increases are happening on the non-nearline side. CEO Irving Tan said the company expects demand to grow at more than 25% a year going forward, and named the new customer set carrying that demand: neoclouds, frontier AI labs and autonomous vehicle companies. On the technology side, shipments of 40TB ePMR drives began during the quarter, with a target of more than half of nearline exabytes by the third calendar quarter of 2027. UltraSMR is planned to reach roughly 60% of nearline shipments by the end of fiscal 2027. The 44TB HAMR drives arrive in the first half of 2027 and 50TB products in the second half. High bandwidth drives offering up to eight times the throughput are already sampling with five customers.
Records across the board, and the stock fell 13%.
For Q1 FY2027 the company guided to $4.1 billion in revenue, a 55-56% gross margin and $4.00 in earnings per share. All three sit above market expectation. The stock still slid from its August 5 close of $519.17 to $451.52 on August 6, with the decline widening to 16% intraday before finishing down 13.03%. The reason is not weak guidance but a flattening slope. Revenue rose 12% sequentially in the fourth quarter; the guide implies about 9%. Gross margin widened 3.9 points in a quarter; the new range implies a gain of 0.6 to 1.6 points. Earnings per share rose 31% sequentially; the guide implies 12%. Improvement continues on every measure, but at less than half the pace. The market had been priced for a world that was accelerating; it is now repricing for a world where the improvement continues but slows. The earnings guide works through that distinction: a number can beat expectations while the price has already beaten more than that.
This is where the peak margin argument begins.
In a cyclical business, a high margin is not a safety cushion — it is a measure of dependence on price. Western Digital's cost structure is not at an extreme, with production cost still 45.6% of revenue, but the leverage runs the same way. Because most of the margin expansion came from selling price, there is limited expense to absorb the fall if nearline prices retreat. The long-term agreements are a genuine shield against that risk: they put a floor under price and spread revenue across years. But a contract with a floor also has a ceiling; if prices keep rising, the company does not capture all of the increase. On the stock side the picture is this: a share that has roughly quintupled in twelve months, with a 52-week high of $799.87, still trading at about 28 times trailing earnings even after the drop. Analysts are split — the average target ranges from $665 to $710 depending on the data provider, while UBS cut its target from $560 to $525 after the report and kept a neutral rating. The valuation guide explains why a multiple can mislead on a stock like this.
Strengths
6- Revenue, earnings and margin all beat expectations; non-GAAP earnings per share grew 109% year over year.
- Non-GAAP gross margin of 54.4% improved 13.1 points in a year, and operating margin reached 44.2%.
- Q1 FY2027 guidance — $4.1 billion in revenue, 55-56% margin, $4.00 in earnings per share — is above market expectation on every line.
- Exabytes shipped rose 22% year over year to 231, and cloud revenue grew 43% to 89% of the total.
- Cost per terabyte fell about 8% year over year, and the company is holding to its roughly 10% annual reduction target.
- Capacity is sold out in the near term and supply agreements extend into 2029-2031, spreading revenue visibility across years.
Risks
6- The pace of improvement is slowing: sequential revenue growth goes from 12% to 9%, the margin gain from 3.9 points to 0.6-1.6 points, and earnings growth from 31% to 12%.
- Most of the margin expansion came from selling price; if nearline prices retreat, operating leverage works in reverse.
- The stock has risen roughly fivefold in twelve months, so much of the good news is already in the price.
- The long-term agreements put a floor under price but also a ceiling; if prices keep climbing, the company will not capture all of it.
- The margin target depends on the 2027 technology transition: delays in 44TB HAMR or 50TB products would strain the 10% annual cost-per-terabyte decline.
- Demand rests on a single source — 89% of revenue comes from cloud — so a slowdown in data center capital spending could break exabyte growth quickly.
What to Watch
6- September 17, 2026 — the $0.15 per share quarterly dividend is paid; record date September 8.
- ~October 2026 — Q1 FY2027 results; company guidance is $4.1 billion in revenue, a 55-56% gross margin and $4.00 in earnings per share.
- Late 2026 — the ramp of 40TB ePMR drives, targeted to exceed half of nearline exabytes by the third calendar quarter of 2027.
- First half of 2027 — first shipments of 44TB HAMR drives, with 50TB products targeted for the second half of 2027.
- End of fiscal 2027 — the target for UltraSMR to reach roughly 60% of nearline exabyte shipments.
- 2029-2031 — the span covered by the long-term supply agreements under negotiation; new signings would extend revenue visibility further.
Upcoming Earnings
To Understand This