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Is WDC Still a Buy as Growth Surges but Valuation Stays Expensive?
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Key Takeaways
Western Digital's fiscal 2026 revenues rose 36%, while non-GAAP EPS increased 104% year over year.
WDC expects Q1 fiscal 2027 revenues of $4.1B at the midpoint, $4 EPS and a 55%-56% gross margin.
Western Digital trades above industry multiples as key ePMR, UltraSMR and HAMR ramps raise execution risk.
Western Digital Corporation (WDC - Free Report) enters fiscal 2027 with sharply higher earnings expectations. Fiscal 2026 revenues rose 36% and non-GAAP earnings per share increased 104%, providing a strong base for the next leg of growth.
The trade-off is valuation. WDC trades above its industry on several common multiples, leaving less room for weaker demand, pricing or product execution.
Near-term guidance supports that trajectory. For the first quarter of fiscal 2027, management expects $4.1 billion of revenues at the midpoint, earnings of $4 per share and a 55%-56% non-GAAP gross margin.
Western Digital's AI Exposure Supports Demand
Cloud generated $3.3 billion, or 89% of fourth-quarter fiscal 2026 revenues, and grew 43% year over year. Management sees AI inference, agentic AI and physical AI increasing retained data volumes and expects exabyte demand growth of more than 25%.
Seagate Technology Holdings plc (STX - Free Report) also cited cloud data-center demand and AI-driven data growth as mass-capacity storage drivers. Sandisk Corporation (SNDK - Free Report) reported fiscal 2026 Datacenter revenues up 437%, showing that data-infrastructure spending is benefiting multiple storage technologies.
WDC's Roadmap Could Extend Margin Gains
Western Digital expects its 40-terabyte ePMR platform to represent about half of nearline bits by the third quarter of fiscal 2027. UltraSMR is expected to reach about 60% of nearline exabyte shipments as fiscal 2027 ends.
Cost per terabyte declined about 8% year over year in the fiscal fourth quarter. Management continues to target roughly 10% annual reductions over the medium to long term as higher-capacity products scale, supporting further margin expansion.
Western Digital's Valuation Raises the Bar
WDC trades at 22.9X forward earnings versus 10.3X for its industry. Its price-to-sales multiple is 12.3X versus 5.4X for the industry, while its 17.9X price-to-book multiple exceeds the industry's 15.0X.
That premium can be supported by rapid growth, but it leaves less valuation protection if demand, pricing or technology transitions fall short of expectations.
WDC's Risks Complicate the Buy Decision
Customer concentration remains a source of volatility because Cloud accounts for 89% of revenues and large customers do not purchase on a linear schedule. Different product mixes can also create quarter-to-quarter swings in exabyte growth.
Execution risk runs through the roadmap. The 40-terabyte ePMR ramp, wider UltraSMR adoption and 44-terabyte HAMR introduction must progress on schedule for Western Digital to capture the expected capacity and cost benefits.
Strong Growth Signals Offset WDC's Weak Value Score
WDC still presents a favorable growth case, but the premium valuation makes the setup less forgiving. Investors must weigh rapid earnings expansion and rising storage demand against the execution required to support those expectations.
The stock currently carries a Zacks Rank #2 (Buy). Its Growth Score of A and Momentum Score of A indicate favorable growth and momentum characteristics, supporting the near-term profile.
The Value Score of F signals a weaker value profile, while the VGM Score of C reflects a mixed combined reading across value, growth and momentum. The balance remains constructive, but valuation discipline is warranted. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
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Is WDC Still a Buy as Growth Surges but Valuation Stays Expensive?
Key Takeaways
Western Digital Corporation (WDC - Free Report) enters fiscal 2027 with sharply higher earnings expectations. Fiscal 2026 revenues rose 36% and non-GAAP earnings per share increased 104%, providing a strong base for the next leg of growth.
The trade-off is valuation. WDC trades above its industry on several common multiples, leaving less room for weaker demand, pricing or product execution.
Western Digital Corporation Price and Consensus
Western Digital Corporation price-consensus-chart | Western Digital Corporation Quote
WDC's Earnings Growth Is Accelerating
Near-term guidance supports that trajectory. For the first quarter of fiscal 2027, management expects $4.1 billion of revenues at the midpoint, earnings of $4 per share and a 55%-56% non-GAAP gross margin.
Western Digital's AI Exposure Supports Demand
Cloud generated $3.3 billion, or 89% of fourth-quarter fiscal 2026 revenues, and grew 43% year over year. Management sees AI inference, agentic AI and physical AI increasing retained data volumes and expects exabyte demand growth of more than 25%.
Seagate Technology Holdings plc (STX - Free Report) also cited cloud data-center demand and AI-driven data growth as mass-capacity storage drivers. Sandisk Corporation (SNDK - Free Report) reported fiscal 2026 Datacenter revenues up 437%, showing that data-infrastructure spending is benefiting multiple storage technologies.
WDC's Roadmap Could Extend Margin Gains
Western Digital expects its 40-terabyte ePMR platform to represent about half of nearline bits by the third quarter of fiscal 2027. UltraSMR is expected to reach about 60% of nearline exabyte shipments as fiscal 2027 ends.
Cost per terabyte declined about 8% year over year in the fiscal fourth quarter. Management continues to target roughly 10% annual reductions over the medium to long term as higher-capacity products scale, supporting further margin expansion.
Western Digital's Valuation Raises the Bar
WDC trades at 22.9X forward earnings versus 10.3X for its industry. Its price-to-sales multiple is 12.3X versus 5.4X for the industry, while its 17.9X price-to-book multiple exceeds the industry's 15.0X.
That premium can be supported by rapid growth, but it leaves less valuation protection if demand, pricing or technology transitions fall short of expectations.
WDC's Risks Complicate the Buy Decision
Customer concentration remains a source of volatility because Cloud accounts for 89% of revenues and large customers do not purchase on a linear schedule. Different product mixes can also create quarter-to-quarter swings in exabyte growth.
Execution risk runs through the roadmap. The 40-terabyte ePMR ramp, wider UltraSMR adoption and 44-terabyte HAMR introduction must progress on schedule for Western Digital to capture the expected capacity and cost benefits.
Strong Growth Signals Offset WDC's Weak Value Score
WDC still presents a favorable growth case, but the premium valuation makes the setup less forgiving. Investors must weigh rapid earnings expansion and rising storage demand against the execution required to support those expectations.
The stock currently carries a Zacks Rank #2 (Buy). Its Growth Score of A and Momentum Score of A indicate favorable growth and momentum characteristics, supporting the near-term profile.
The Value Score of F signals a weaker value profile, while the VGM Score of C reflects a mixed combined reading across value, growth and momentum. The balance remains constructive, but valuation discipline is warranted. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.