Hard disk drive (HDD) manufacturer is Western Digital NASDAQ: WDC has been in a rare situation indeed when it comes to stock market performance. Through 2025, the technology stock has generated a total return of more than 280%, ranking as the S&P 500’s third-best performing stock for the year. Shares haven’t looked back in 2026, rising more than 150%, the fifth-best performance among S&P 500 stocks so far.
Western Digital’s success comes as the company sees high demand for its end devices from Artificial Intelligence (AI) customers.
As AI developers continue to improve their models and make them perform more tasks, the data requirements only increase.
Western Digital’s latest financial report shows that it continues to ride the AI wave. The company boasts strong earnings prospects for the next few years, as investors debate whether the high-performing stock still has room for growth.
Western Beats posts on Sales, EPS, and Guidance
In its fiscal Q3 2026, Western Digital posted revenue of $3.34 billion, marking an impressive 45.5% year-over-year (YOY) increase. (Note that Western Digital’s fiscal reporting period is nearly two quarters ahead of the normal calendar-year reporting period.) This marked the company’s highest revenue growth rate in nine years and exceeded average expectations of $3.25 billion.
Meanwhile, adjusted earnings per share (EPS) rose 97% YOY to $2.72, beating estimates of $2.39, which represented 76% YOY growth.
Guidance also exceeded expectations. For the next quarter, the company expects to generate $3.65 billion in revenue for the quarter. This would equate to growth of around 40% YOY, which was higher than expected at $3.46 billion. For adjusted EPS, the company is forecasting $3.25, or 96% YOY growth, which is well above estimates of $2.75.
Cloud Drives Big Time Demand for Nearline HDDs
Notably, 89% of the company’s revenue during the quarter came from cloud customers, with the company seeing strong demand for its near-field HDDs. Nearline HDDs store huge amounts of data, and AI data centers use them in abundance.
The company uses exabytes to measure the capacity it sells. For reference, one exabyte is equal to one million terabytes (TB), with one TB considered a fairly large amount of data storage on a personal computer.
The company sold 199 exabytes of adjacent HDDs during the quarter, a 37% YOY increase. This compares to non-adjacent HDD exabytes of 23 and an increase of 9.5% YOY, indicating that adjacent demand is the main growth driver for the company. Overall, cloud revenue reached $3 billion, up 48% YOY.
West: IR&D Over Production Capacity
For Western Digital, it is very important to understand how the company plans to deliver more data storage capacity to customers going forward. The company clearly stated that it has “no plans” to increase production of the HDD unit.
In other words, it will not deliver more data storage by increasing the raw number of HDDs it can produce. Instead, it invests in research and development to increase the storage capacity of each HDD. Its main competitor, Seagate Technology NASDAQ: STXtakes the same approach. This system provides many important benefits to these firms.
First, limiting unit capacity keeps pricing power on their side. Flooding the market with more units will put downward pressure on prices, countering one of the key ways Western and Seagate benefit. Western notes that prices increased 9% YOY during the quarter.
Second, the company does not have to make large investments in the production of new buildings, allowing it to keep costs low and increase free cash flow. Western free cash flow increased 124% YOY to $978 million, significantly higher than the 13% YOY cost of capital rose to $145 million.
Finally, higher capacity HDDs have higher margins. During the quarter, Western’s gross margin increased by 1,040 basis points to 50.5%. The company notes that its shift to high-end HDDs was one of the main drivers of this.
By pursuing its strategy of increasing the storage capacity of each HDD, the company can keep this valuable energy intact.
Western Business Is As Strong As Ever, And Everyone Knows It
Western says its long-term outlook continues to improve, with the company having contracts with hyperscalers extending into the 2028 and 2029 calendar years. This is an important factor that supports the West’s view, as customers close orders many years in advance. Combined with its strategy of not increasing unit capacity, there is significant potential for Western margins to continue to move higher.
Western Digital Stock Forecast Today
$395.83
-15.37% LowBuy Medium
Based on 23 Analyst Ratings
| Current Price | $467.72 |
|---|---|
| High Forecast | $660.00 |
| Average prediction | $395.83 |
| Low Prognosis | $163.00 |
Western Digital Stock Forecast Details
It’s no secret that Western has performed surprisingly well, raising questions about how far its rally can go. But the demand for AI is not slowing down, and, in general, trends in AI trade continue to improve. This provides an opportunity for Western stocks to continue to climb higher, but investors should not ignore the risks of pushing back the use of AI. With large gains in the West, the stock is likely to be among the hardest hit if this happens.
Still, Wall Street analysts seem to be only increasing their predictions. The MarketBeat West consensus price target currently sits near $396, a price that represents a more than 10% decline in shares. Targets rose sharply after the company’s earnings report, but the stock has already caught many of them.
The target estimate issued after the company’s earnings report is around $483, implying a upside of less than 5%.
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