Overview
Newer Analysis:Q1 FY2027 · Oct 22
Western Digital
WDC · NASDAQQ4 FY2026Semiconductors · HDD / Data Storage
Since the Report − 15.4%
Revenue grew 44.0% year over year, EPS beat the estimate by 7.0%; the stock fell 13.0% in its first reaction.
- RevenueQ4
- $3.75B
- ▲ 44% YoY
- Gross MarginNon-GAAP
- 54.4%
- +13.1 Pts YoY
Verdict
BUYWestern Digital grew revenue 44% year over year, widened gross margin by 13.1 points and guided above market expectation for the new quarter. The stock still fell 13%. The market is no longer pricing the level of improvement but its speed.
Close on Report DayAug 5
$451.52▼ 13.0%Report-Day Move
- Market Cap(Today)
- ≈ $143 B
- 1Y Return(At Report)
- + 495%
- P/E(At Today's Price · $10.19 · Trailing 12M)
- 37.5
- PEG(Forward 12 Months)
- 0.38
- Net Margin(Trailing 12M)
- 69.2%
Earnings Summary
In 30 Seconds- Revenue rose 44% year over year to $3.75 billion; adjusted EPS of $3.56 beat the estimate by 7%.
- The company guided next-quarter revenue to $4.1 billion with a 55-56% gross margin; the revenue guide is 2% above estimates.
- The stock fell 13% the next day; the market priced the slowing pace of improvement, not the strong quarter.
The Numbers
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
Q4 FY25 · $2.61 B
2.82
Q1 FY26 · $2.82 B · QoQ + 8.2%
3.02
Q2 FY26 · $3.02 B · QoQ + 7.1%
3.34
Q3 FY26 · $3.34 B · QoQ + 10.6%
3.75
Q4 FY26 · $3.75 B · QoQ + 12.4% · YoY + 44.0%
$4.0–4.2B
Q1 FY27 · $4.0–4.2B · QoQ + 9.3% · YoY + 45.5%
- Q4 FY25
- Q1 FY26
- Q2 FY26
- Q3 FY26
- Q4 FY26
- Q1 FY27
Q1 FY27 Guidance (Reported)
- Revenue4.0 – 4.2 billion4.0 billion4.2 billion
Midpoint 4.10 · Market Expectation 4.01Within Range ✓
- EPS3.85 – 4.15 $3.85 $4.15 $
Midpoint 4.00 · Market Expectation 3.81Midpoint 5% Above Estimate ▲
- Gross Margin (Non-GAAP)55% – 56%55%56%
Midpoint 55.5% · 54.4% in Q4 FY26+1.1 pts Expansion ▲
How to Read the Chart
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. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±5.5% around the midpoint.
Company-Specific Metrics
Free Cash Flow
$1.28 B
Press Release
Operating Cash Flow
$1.39 B
Press Release
Share Repurchases
$672 M
Press Release
Dividends Paid
$54.0 M
Press Release
Metrics come only from the company's own filings; each one names the document it was taken from.
“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 and Review
Summary
Western Digital reported its fiscal fourth quarter after the close on August 5. Revenue was $3.75 billion, up 44% year over year and 12% sequentially. Non-GAAP earnings per share of $3.56 beat expectations by roughly 7% and rose 109%. Non-GAAP gross margin was 54.4%, up 13.1 points from 41.3% a year ago. Exabytes shipped reached 231; cloud revenue of $3.3 billion was 89% of the total. Full-year revenue was $12.92 billion, up 36%; free cash flow was $3.51 billion.
New-quarter guidance of $4.1 billion in revenue, a 55-56% gross margin and $4.00 in earnings per share beat expectations on all three. The stock fell anyway, as much as 16% intraday on August 6, closing at $451.52, down 13.03%. The Nasdaq 100 was nearly flat; this was not a broad market move. Investors sold the slope: sequential revenue growth slows from 12% to 9%, margin gain from 3.9 to 0.6-1.6 points, EPS growth from 31% to 12%.
The quarter itself has no obvious weak spot. Revenue, earnings and margin beat, guidance was above expectation, capacity is sold out, agreements reach 2031, cost per terabyte keeps falling. So the share reaction does not lower the score. The reservation is how much is already priced in: for a stock up fivefold in twelve months, "beat expectations" is not a complete answer. The quarter scores strongly; when to buy is a separate question — see the risk management guide.
Full Review
The 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.
Manufacturing capacity is booked for the near term. Management is negotiating long-term supply agreements extending into 2029, 2030 and 2031, materially lengthening demand visibility. Nearline products carry predictable pricing: customers know the price in advance. Faster price increases are happening on the non-nearline side. CEO Irving Tan expects demand to grow at more than 25% a year. The new customers carrying that demand: neoclouds, frontier AI labs and autonomous vehicle companies. On technology, shipments of 40TB ePMR drives began during the quarter; the target is 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; the decline reached 16% intraday before finishing at 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 0.6 to 1.6 points. Earnings per share rose 31% sequentially; the guide implies 12%. Improvement continues on every measure, at less than half the pace. The market was priced for acceleration; it now reprices for improvement that 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, high margin is not a cushion; it measures dependence on price. Production cost is still 45.6% of revenue, not an extreme structure, but the leverage runs the same way. Because most of the margin expansion came from selling price, little expense would absorb a nearline price retreat. The long-term agreements are a shield: a price floor, revenue spread across years. But a floor also means a ceiling; if prices keep rising, the company misses part of the gain. The stock has quintupled in twelve months, hit a 52-week high of $799.87 and still trades at 28 times trailing earnings. Analysts are split: average targets run from $665 to $710 by provider; UBS cut its target from $560 to $525, rating neutral. Next quarter's line to watch: gross margin in the upper half of the 55-56% range. The valuation guide explains why a multiple misleads here.
Looking Ahead
Strengths and Risks
6 Strengths · 6 RisksStrengths
6- Revenue, earnings and margin all beat expectationsNon-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- Improvement is slowingSequential revenue growth 12% to 9%, margin gain 3.9 to 0.6-1.6 points, earnings growth 31% to 12%.
- Most of the margin expansion came from selling priceİf 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 ceilingİf prices keep climbing, the company will not capture all of it.
- The margin target depends on the 2027 technology transitionDelays in 44TB HAMR or 50TB products would strain the 10% annual cost-per-terabyte decline.
- Demand rests on one source — 89% of revenue is cloud — so a slowdown in data center capital spending could break exabyte growth.
What to Watch
6- September 17, 2026The $0.15 per share quarterly dividend is paid; record date September 8.
- ~October 2026Q1 FY2027 results; company guidance is $4.1 billion in revenue, a 55-56% gross margin and $4.00 in earnings per share.
- Late 2026The ramp of 40TB ePMR drives, targeted to exceed half of nearline exabytes by the third calendar quarter of 2027.
- First half of 2027First shipments of 44TB HAMR drives, with 50TB products targeted for the second half of 2027.
- End of fiscal 2027The target for UltraSMR to reach roughly 60% of nearline exabyte shipments.
- 2029-2031The span covered by the long-term supply agreements under negotiation; new signings would extend revenue visibility further.
Upcoming Earnings
To Understand This