We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Western Digital's Q1 Beat and Q2 Outlook Signal More Margin Upside
Read MoreHide Full Article
Key Takeaways
Western Digital's Q1 revenues surged 55%, while earnings jumped 161%, driven by stronger pricing and mix.
WDC projects Q2 revenues of $5.1 billion and gross margins of 60-61%, supported by higher-capacity drives.
WDC's ePMR and HAMR transitions support capacity gains, while its 11.5X forward P/E raises valuation concerns.
Western Digital Corporation (WDC - Free Report) entered fiscal 2027 with faster revenue growth, wider margins and stronger pricing. The first-quarter beat also showed how higher-capacity hard disk drives are improving the company’s earnings profile as cloud and artificial intelligence storage demand expands.
The fiscal second-quarter outlook now tests whether that profitability can move higher again. Pricing, product mix and capacity gains remain central to the margin story, while technology execution and valuation still shape the risk-reward balance.
WDC’s Q1 Beat Shows Pricing Power Is Still Building
Fiscal first-quarter revenues rose 55% year over year to $4.38 billion. Non-GAAP earnings increased 161% to $4.64 per share and exceeded the Zacks Consensus Estimate of $4.09 by 13.5%. The sales figure also topped the consensus mark of $4.16 billion.
p> Image Source: Zacks Investment Research
Pricing was an important contributor. Average price per terabyte increased 28% year over year, accelerating from growth in the high teens in the preceding quarter. Combined with a richer mix of higher-capacity drives, that pricing helped lift non-GAAP gross margin to 58.1%, up 1,420 basis points year over year.
Western Digital’s Q2 Guide Points to More Margin Gains
Management expects fiscal second-quarter revenues of $5.1 billion, plus or minus $100 million. The midpoint implies 69% year-over-year growth, while non-GAAP gross margin is projected at 60-61%.
That range would move profitability above the already elevated 58.1% first-quarter level. Management expects higher-capacity drives and favorable pricing to remain key supports, suggesting that the margin expansion is not relying on revenue growth alone.
WDC’s Product Transitions Could Expand Capacity
Western Digital expects its newest ePMR platform, with capacities of up to 40 terabytes, to approach 30% of nearline shipments in the fiscal second quarter and 50% in the third quarter. UltraSMR adoption is also expanding, while first-generation HAMR volume shipments remain planned for the first half of calendar 2027.
These transitions are designed to increase capacity per drive and support lower cost per terabyte over time. Seagate Technology Holdings plc (STX - Free Report) is pursuing the same industry objective through its Mozaic HAMR platform, which has reached production with hyperscale customers. The broader move toward denser drives reinforces the importance of execution in maintaining storage economics.
Western Digital’s AI Storage Exposure Broadens Demand
Management sees inference, agentic AI and physical AI as recurring sources of data creation because these workloads generate logs, model outputs, video and system-performance data that must be retained. That demand adds to the company’s core cloud-storage opportunity.
The customer base is also widening beyond established hyperscalers toward neoclouds, frontier AI labs and enterprise environments. NetApp, Inc. (NTAP - Free Report) is similarly investing in AI-oriented data infrastructure, including technologies aimed at scaling data access for AI workloads. The activity across storage vendors points to a broader infrastructure requirement as AI moves from model development toward sustained usage.
WDC’s Ratings Back Momentum but Flag Valuation
The operating setup remains favorable, but valuation leaves less room for execution setbacks. WDC’s forward 12-month price-to-earnings ratio of 11.5 stands above the 7.05 level for its sub-industry, while product qualification, input costs and customer concentration remain risks.
WDC currently carries a Zacks Rank #1 (Strong Buy). Its Growth Score of B and Momentum Score of B fit the favorable earnings and estimate-revision backdrop, including a 20.2% increase in the current-fiscal-year earnings estimate over the past four weeks. The Value Score of D and VGM Score of C temper that picture, indicating that investors seeking stronger value characteristics may see less support despite the company’s improving operating momentum. You can see the complete list of today’s Zacks #1 Rank stocks here.
View the Zacks #1 Rank List
Image: Bigstock
Western Digital's Q1 Beat and Q2 Outlook Signal More Margin Upside
Key Takeaways
Western Digital Corporation (WDC - Free Report) entered fiscal 2027 with faster revenue growth, wider margins and stronger pricing. The first-quarter beat also showed how higher-capacity hard disk drives are improving the company’s earnings profile as cloud and artificial intelligence storage demand expands.
The fiscal second-quarter outlook now tests whether that profitability can move higher again. Pricing, product mix and capacity gains remain central to the margin story, while technology execution and valuation still shape the risk-reward balance.
WDC’s Q1 Beat Shows Pricing Power Is Still Building
Fiscal first-quarter revenues rose 55% year over year to $4.38 billion. Non-GAAP earnings increased 161% to $4.64 per share and exceeded the Zacks Consensus Estimate of $4.09 by 13.5%. The sales figure also topped the consensus mark of $4.16 billion.
p>
Image Source: Zacks Investment Research
Pricing was an important contributor. Average price per terabyte increased 28% year over year, accelerating from growth in the high teens in the preceding quarter. Combined with a richer mix of higher-capacity drives, that pricing helped lift non-GAAP gross margin to 58.1%, up 1,420 basis points year over year.
Western Digital’s Q2 Guide Points to More Margin Gains
Management expects fiscal second-quarter revenues of $5.1 billion, plus or minus $100 million. The midpoint implies 69% year-over-year growth, while non-GAAP gross margin is projected at 60-61%.
That range would move profitability above the already elevated 58.1% first-quarter level. Management expects higher-capacity drives and favorable pricing to remain key supports, suggesting that the margin expansion is not relying on revenue growth alone.
WDC’s Product Transitions Could Expand Capacity
Western Digital expects its newest ePMR platform, with capacities of up to 40 terabytes, to approach 30% of nearline shipments in the fiscal second quarter and 50% in the third quarter. UltraSMR adoption is also expanding, while first-generation HAMR volume shipments remain planned for the first half of calendar 2027.
These transitions are designed to increase capacity per drive and support lower cost per terabyte over time. Seagate Technology Holdings plc (STX - Free Report) is pursuing the same industry objective through its Mozaic HAMR platform, which has reached production with hyperscale customers. The broader move toward denser drives reinforces the importance of execution in maintaining storage economics.
Western Digital’s AI Storage Exposure Broadens Demand
Management sees inference, agentic AI and physical AI as recurring sources of data creation because these workloads generate logs, model outputs, video and system-performance data that must be retained. That demand adds to the company’s core cloud-storage opportunity.
The customer base is also widening beyond established hyperscalers toward neoclouds, frontier AI labs and enterprise environments. NetApp, Inc. (NTAP - Free Report) is similarly investing in AI-oriented data infrastructure, including technologies aimed at scaling data access for AI workloads. The activity across storage vendors points to a broader infrastructure requirement as AI moves from model development toward sustained usage.
WDC’s Ratings Back Momentum but Flag Valuation
The operating setup remains favorable, but valuation leaves less room for execution setbacks. WDC’s forward 12-month price-to-earnings ratio of 11.5 stands above the 7.05 level for its sub-industry, while product qualification, input costs and customer concentration remain risks.
WDC currently carries a Zacks Rank #1 (Strong Buy). Its Growth Score of B and Momentum Score of B fit the favorable earnings and estimate-revision backdrop, including a 20.2% increase in the current-fiscal-year earnings estimate over the past four weeks. The Value Score of D and VGM Score of C temper that picture, indicating that investors seeking stronger value characteristics may see less support despite the company’s improving operating momentum. You can see the complete list of today’s Zacks #1 Rank stocks here.