Western Digital (WDC) shares soared 6%, as AI data center boom drives storage sector higher

Core Points

Impressive quarterly results support bullish sentiment

Pricing dynamics and efficiency improvements focus on

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Western Digital (WDC) shares perform strongly

Driven by a rebound in the entire memory sector and growing enthusiasm for investment in artificial intelligence-driven data centers, Western Digital (WDC) shares rose 5.9% to close at $467.46 per share. The storage giant exceeded quarterly expectations, with earnings per share of $3.56 and sales of $3.75 billion, both exceeding Wall Street forecasts.

Guidance for the first quarter of fiscal 2027 shows that earnings per share are expected to be between US$3.85 and US$4.15, and revenue is expected to be approximately US$4.1 billion. Wall Street maintains a "moderate buy" rating on the stock, with an average price target of $534.56. However, CEO Irving Tan sold $8.9 million worth of shares in August as part of an insider reduction that totaled more than $10 million last quarter.

Western Digital (WDC) shares surged 5.9% during Friday's trading session, reaching an intraday high of $468.19 before finally closing at $467.46. Compared with the previous trading day's closing price of US$441.57, this increase is significant.

The rally coincided with broad strength in memory and storage stocks, with SK Hynix shares rising 7% and Seagate rising 5%. Market participants are increasingly confident that investment in artificial intelligence infrastructure will maintain favorable pricing dynamics and profit growth across the industry.

WDC shares have risen about 70% over the past six months, although they are still trading well below the 52-week high of $799.87 set in June.

Strong quarterly results support bullish sentiment

Western Digital announced its fourth quarter financial report for the fiscal year 2026 on August 5, with key indicators exceeding expectations. The company's earnings per share reached $3.56, above the analyst consensus forecast of $3.31. Total revenue reached US$3.75 billion, higher than expectations of US$3.7 billion, a year-on-year increase of 44%.

Cloud-related sales dominate, accounting for approximately 89% of total revenue, reaching US$3.3 billion, with an annual growth rate of 43%. In particular, the demand for high-capacity near-line hard drives deployed in enterprise data centers is particularly strong.

Non-GAAP gross margin expanded to 54.4%, and operating profit margin reached 44.2%. The company's return on net assets reached 48.15%.

Looking forward to the first quarter of fiscal 2027, management expects revenue to be close to US$4.1 billion and earnings per share in the range of US$3.85 to 4.15. Non-GAAP gross margin is expected to be 55% to 56%.

Pricing dynamics and efficiency improvements focus on

Prices per terabyte (TB) increased by high double-digit percentages year-on-year, supported by multi-year customer contracts that extend from 2029 to 2031. At the same time, costs per terabyte fell by approximately 8% during the quarter, and the company aims to achieve sustained cost reductions of 10% annually.

WDC is expanding production of its next-generation ePMR drives with capacity up to 40TB and expects UltraSMR technology to account for approximately 60% of near-line shipments by the end of fiscal 2027.

Throughout fiscal year 2026, the company distributed $3.1 billion to shareholders, including alone's $1 billion share buybacks and $54 million in dividend payments in the fourth quarter. There was approximately $500 million in net cash on the balance sheet at the end of the year.

Current analyst sentiment reflects the consensus of "moderate buy". Price targets vary widely, ranging from Cantor Fitzgerald's $900 target to JPMorgan's $650 and Susquehanna's $500. The average is $534.56.

It is worth noting that CEO Irving Tan sold 20,000 shares of stock on August 11 for approximately US$8.9 million. The total sell-off by insiders exceeded $10.4 million in the previous quarter. These transactions are conducted through a pre-established Rule 10b5 -1 trading plan.

The 50-day moving average is currently at $508.41, while the 200-day moving average is at $445.56. The stock trades at a price-to-earnings ratio of 7.52 times forward-looking sales, which is above the industry average of 3.05 times.

Zacks has raised its fiscal 2027 earnings per share forecast by 7.5% to $20.03 and raised its fiscal 2028 forecast by 7.6% to $34.74 in the past 60 days.

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