Core Viewpoint - Benchmark analyst Mark Miller upgraded Western Digital Corp from Hold to Buy with a price target of $55, citing attractive valuations and growth potential in data center spending and AI opportunities [1] Group 1: Company Performance and Valuation - Western Digital stock is currently trading at the low end of its historical valuation range, which typically spans from mid-single digits to teen multiples [1] - The company reported a record Nearline Exabytes (EB) shipment and Data Center sales last quarter, indicating strong demand in the data center segment [3] - Projected third-quarter revenue for Western Digital is $2.70 billion with an EPS of $1.32, an increase from the prior estimate of $1.12 [5] Group 2: Industry Trends and Opportunities - Nearly two-thirds of companies using cloud storage expect their cloud-based storage to grow by over 100% in the next three years, indicating a significant market expansion [2] - Major cloud service providers, including Alphabet, Amazon, Meta, and Microsoft, are expected to increase their combined capital expenditure by 40%, from approximately $230 billion in 2024 to $322 billion in 2025 [2] - Approximately 89% of data stored by leading cloud service providers is on hard drives, which positions Western Digital favorably as data center spending continues to rise [3] Group 3: AI and Storage Cost Dynamics - The unit price per GB for nearline storage HDDs is $0.013, significantly lower than the $0.123 per GB for large capacity SSDs, making HDDs more cost-effective for data storage [4] - The growth of AI applications is expected to increase the demand for data storage, favoring hard drives over flash storage due to the need for long-term data retention [4] - The anticipated ramp-up of PCs with AI chips in the second half of 2025 is expected to drive a refresh cycle for PCs, further benefiting Western Digital [5]

Company Performance - Western Digital (WDC) shares increased by 15.1% to $36.30, following a 24.5% loss over the previous four weeks, driven by President Trump's announcement of a 90-day halt on reciprocal tariffs, excluding China [1] - The company is experiencing increasing sales momentum in the Cloud end-market, particularly due to heightened demand for nearline HDDs [2] - Management anticipates that the rise of generative AI will lead to a refresh cycle in client and consumer devices, boosting content growth across smartphones, gaming, PCs, and consumer markets [3] Market Trends - The adoption of generative AI surged to 65% in 2024 from 33% in 2023, increasing demand for high-bandwidth memory (HBM) for AI servers and NAND flash for storage, which is essential for SSDs [4] - The growth in AI data is expected to drive eSSD sales, reshaping the storage market due to its speed, reliability, and efficiency compared to HDDs [4] Business Structure - In February 2025, Western Digital completed the separation of its HDD and Flash businesses into two independent, publicly traded companies, allowing each to focus on its specific market [5] Financial Expectations - Western Digital is projected to report quarterly earnings of $1.06 per share, reflecting a year-over-year increase of 68.3%, with revenues expected to reach $3.85 billion, up 11.4% from the previous year [6] - The consensus EPS estimate for the quarter has been revised 3.2% higher over the last 30 days, indicating a positive trend that typically correlates with stock price appreciation [8]

Group 1 - The article highlights the market's focus on chipmakers like NVIDIA due to innovations in generative AI, while other beneficiaries are being overlooked [1] - There is a growing interest in data-driven analysis for identifying long-term stock picking opportunities, particularly in the context of wealth generation for retirement and family [1] Group 2 - No specific companies or investment positions are disclosed, indicating a neutral stance on the mentioned stocks [2] - The article emphasizes that past performance does not guarantee future results, and no investment recommendations are provided [3]

Have you been searching for a stock that might be well-positioned to maintain its earnings-beat streak in its upcoming report? It is worth considering Western Digital (WDC) , which belongs to the Zacks Computer- Storage Devices industry.When looking at the last two reports, this maker of hard drives for businesses and personal computers has recorded a strong streak of surpassing earnings estimates. The company has topped estimates by 1.72%, on average, in the last two quarters.For the last reported quarter, ...

Company Performance - Western Digital's stock closed at $43.66, reflecting a decrease of -1.91% from the previous day, underperforming the S&P 500's gain of 0.08% [1] - Over the past month, Western Digital shares have declined by 37.57%, significantly worse than the Computer and Technology sector's loss of 12.04% and the S&P 500's loss of 7.33% [2] Financial Expectations - Analysts anticipate Western Digital will report earnings of $1.06 per share, representing a year-over-year growth of 68.25%. Revenue is expected to reach $3.85 billion, indicating an 11.4% increase compared to the same quarter last year [3] - For the full year, Zacks Consensus Estimates project earnings of $5.46 per share and revenue of $16.27 billion, which would signify year-over-year changes of +2830% and +25.13%, respectively [4] Analyst Projections - Recent shifts in analyst projections for Western Digital are crucial, as they reflect short-term business trends. Positive estimate revisions are seen as a sign of optimism regarding the company's outlook [5] - The Zacks Rank system, which incorporates estimate changes, currently ranks Western Digital at 3 (Hold), with the consensus EPS estimate having decreased by 0.95% over the last 30 days [7] Valuation Metrics - Western Digital has a Forward P/E ratio of 8.16, which is lower than the industry's average Forward P/E of 12.93, indicating a valuation discount [8] - The Computer-Storage Devices industry, part of the Computer and Technology sector, holds a Zacks Industry Rank of 31, placing it in the top 13% of over 250 industries [8]

Group 1 - The article discusses a long-term, contrarian approach to equities investing, with a focus on the Tech, Commodities, and Energy sectors as the world undergoes an energy transition [1] Group 2 - There are no disclosed stock, option, or derivative positions in any mentioned companies, and no plans to initiate such positions in the near future [2] - The article expresses personal opinions and is not influenced by compensation from any companies mentioned [2] Group 3 - Past performance is noted as not guaranteeing future results, and no specific investment recommendations are provided [3] - The views expressed may not reflect those of Seeking Alpha as a whole, and the analysts may not be licensed or certified [3]

Company Performance - Western Digital's stock closed at $44.75, reflecting a +0.49% change from the previous session, underperforming the S&P 500 which gained 0.64% [1] - Over the past month, Western Digital shares have decreased by 34.89%, while the Computer and Technology sector and the S&P 500 have lost 11.22% and 7.69% respectively [2] Earnings Projections - The upcoming earnings per share (EPS) for Western Digital is projected at $1.06, indicating a significant increase of 68.25% compared to the same quarter last year [3] - Quarterly revenue is estimated to be $3.85 billion, which represents an 11.4% increase from the previous year [3] Full Year Estimates - For the full year, earnings are projected at $5.46 per share and revenue at $16.27 billion, showing increases of +2830% and +25.13% respectively from the prior year [4] - Recent changes in analyst estimates suggest a positive outlook for the company's business and profitability [4] Analyst Ratings and Valuation - The Zacks Rank system currently rates Western Digital as 3 (Hold), with a recent 0.95% decrease in the consensus EPS estimate over the last 30 days [6] - Western Digital has a Forward P/E ratio of 8.16, which is lower than the industry average of 12.72, indicating it is trading at a discount [7] Industry Context - The Computer-Storage Devices industry, part of the Computer and Technology sector, ranks in the top 33% of all industries according to the Zacks Industry Rank [7] - The Zacks Industry Rank assesses the strength of industry groups, with the top 50% rated industries outperforming the bottom half by a factor of 2 to 1 [8]

Core Viewpoint - SanDisk Corp. will replace Leslie Inc. in the S&P SmallCap 600 effective February 25, 2025, due to Leslie's market capitalization no longer being representative of the small cap market space [1]. Group 1: Index Changes - SanDisk (SNDK) will be added to the S&P SmallCap 600 on February 25, 2025, in the Information Technology sector [2]. - Leslie (LESL) will be deleted from the S&P SmallCap 600 on the same date, categorized under the Consumer Discretionary sector [2]. Group 2: Corporate Actions - Western Digital Corp. is spinning off SanDisk, with the transaction expected to be completed on February 24, 2025, and Western Digital will remain in the S&P 500 post spin-off [1].

Core Viewpoint - Western Digital's strong Q2 2025 results, driven by record nearline shipments and the adoption of UltraSMR technology, have led to a significant stock price increase, outperforming the S&P 500 [1][2] Financial Performance - Q2 2025 revenue surged 41% year-over-year to $4.3 billion, with cloud-related revenue accounting for 55% of total sales at $2.3 billion, more than doubling year-over-year [2] - Client revenue rose 4% year-over-year, while consumer revenue dropped 8% year-over-year due to lower HDD and Flash shipments [2] - Gross margins expanded significantly to 35.4% from 16.2% a year earlier, and diluted earnings per share improved to $1.77 from a loss of $0.93 in Q2 2024 [2] Stock Performance - Over the past four years, Western Digital's stock has shown volatility, with an 18% gain in 2021, a 52% decline in 2022, a 66% rebound in 2023, and a 14% rise in 2024 [3] - In comparison, the Trefis High Quality Portfolio has demonstrated more stability and outperformed the S&P 500 during the same period [3] Valuation Insights - The adjusted valuation for Western Digital is $76 per share, based on an expected EPS of $5.82 and a 13.1x price-to-earnings multiple for fiscal 2025, indicating a nearly 13% premium over the current market price [4] - Analysts' average price target of $84 suggests a potential 25% upside, indicating room for further growth [4] Business Separation and Future Projections - Western Digital is set to finalize the separation of its Flash and HDD businesses by February 21, 2025, with projected Q3 revenue between $3.75 billion and $3.95 billion [5] - Operating expenses are expected to rise to between $700 million and $720 million due to one-time separation costs [5] Segment Performance Expectations - The Flash business is anticipated to see a mid-teens percentage revenue decline in Q3, while the HDD segment is projected to experience a mid-to-high single-digit percentage revenue decline [6] - HDD gross margins are expected to improve by approximately 50 basis points as average selling prices increase [6]

Financial Performance - Revenue for the second quarter of fiscal 2025 reached $4,285 million, a 41% increase from $3,032 million in the same period last year[174]. - Gross profit for the first half of fiscal 2025 was $3,067 million, representing a 419% increase compared to $591 million in the prior year[176]. - The company reported a net income of $594 million for the second quarter, a significant turnaround from a net loss of $287 million in the same quarter last year, marking a 307% improvement[174]. - Operating income for the first half of fiscal 2025 was $1,594 million, compared to an operating loss of $806 million in the same period last year, reflecting a 298% increase[176]. - Consolidated net revenue for the three months ended December 27, 2024, was $4,285 million, a 41.3% increase from $3,032 million in the prior year[1][2]. - The Obligor Group reported net sales of $2.905 billion for the six months ended December 27, 2024, with a gross profit of $1.141 billion[234]. - The Obligor Group's net income for the six months ended December 27, 2024, was $52 million, a significant improvement compared to a net loss of $1.211 billion for the year ended June 28, 2024[234]. Revenue Breakdown - HDD revenue increased by 76% for the three months ended December 27, 2024, driven by a 93% increase in exabytes sold, despite an 8% decline in average selling prices per gigabyte[3][4]. - Flash revenue rose by 13% for the three months ended December 27, 2024, reflecting a 14% increase in average selling prices per gigabyte[5][6]. - Cloud revenue surged by 119% for the three months ended December 27, 2024, with a 114% increase in exabytes sold[7][8]. - Consolidated gross profit increased by $1.02 billion for the three months ended December 27, 2024, primarily due to higher product shipments and improved pricing[9][10]. - Gross margin for HDD improved by approximately 14 percentage points year over year for the three months ended December 27, 2024[11]. Expenses and Cost Management - Research and development expenses increased to $1,021 million for the first half of fiscal 2025, up 17% from $875 million in the prior year[176]. - R&D expenses increased by $58 million for the three months ended December 27, 2024, driven by higher variable compensation and increased headcount[12]. - SG&A expenses rose by $40 million for the three months ended December 27, 2024, primarily due to increased compensation and legal fees[13]. - The company experienced a supply-demand imbalance in the first half of 2024, leading to reduced shipments and pricing pressures, prompting cost-reduction measures[167]. - The company anticipates a modest reduction in annual operating expenses and capital expenditures due to a new five-year Supply Agreement with SDSS, committing to a minimum of $550 million annually[171]. Business Strategy and Separation - The company plans to separate its HDD and Flash business units, with an expected distribution of 80.1% of Sandisk Corporation shares to common stockholders on or about February 21, 2025[166]. - The company plans to enter into an amendment with lenders to facilitate the separation of its HDD and Flash business units, which may adjust certain commitments under existing loan agreements[231]. Cash Flow and Capital Expenditures - Net cash provided by operating activities was $437 million for the six months ended December 27, 2024, a significant improvement from a net cash used of $(718) million in the same period in 2023[206]. - Capital expenditures were reduced to approximately $825 million in 2024 from approximately $2.22 billion in 2023, reflecting a disciplined approach to capital investments[209]. - The company expects cash capital expenditures in 2025 to be higher than in 2024 but remain below 2023 expenditures[209]. - Net cash provided by investing activities for the six months ended December 27, 2024, included $191 million in net proceeds from the sale of a majority interest in a subsidiary[216]. - During the six months ended December 27, 2024, net cash used in financing activities was primarily due to $225 million for repayment of amounts borrowed under the revolving credit facility[217]. Debt and Financial Obligations - As of December 27, 2024, the total long-term debt, including current portion, was $7.413 billion, with interest on debt amounting to $848 million[221]. - The company had commitments related to Flash Ventures totaling $4.442 billion, with $1.318 billion due in the remaining six months of 2025[221]. - The company issued $1.60 billion of convertible senior notes in November 2023, maturing on November 15, 2028, with an annual interest rate of 3.00%[228]. - The company had $2.25 billion available for borrowing under its revolving credit facility maturing in January 2027[230]. - The company is in compliance with financial leverage ratio covenants as of December 27, 2024[230]. Tax and Regulatory Matters - Income tax expense for the three months ended December 27, 2024, was $147 million, resulting in an effective tax rate of 20%, compared to an effective tax rate of (11)% for the same period in 2023[202]. - The effective tax rate for the six months ended December 29, 2023, was impacted by a net decrease of $30 million to the liability for unrecognized tax benefits[203]. - The company expects to realize tax savings of approximately $166 million from reductions in mandatory deemed repatriation tax obligations and interest deductions in future years[224]. - As of December 27, 2024, the estimated mandatory deemed repatriation tax obligation was $331 million, expected to be paid within the next twelve months[238]. Market and Risk Management - The company expects long-term market improvements driven by digital transformation and artificial intelligence data-cycle advancements[168]. - There have been no material changes to the company's market risk during the six months ended December 27, 2024[247]. - The company uses foreign exchange contracts to hedge against fluctuations in foreign currency for operating expenses and product costs[240]. - A hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $239 million[248]. - The outstanding balance on the company's variable rate debt was $2.5 billion as of December 27, 2024, and a one percent increase in the variable interest rate would increase annual interest expense by $25 million[249]. Accounting and Compliance - The financial statements are prepared in accordance with U.S. GAAP, requiring judgments and estimates that may materially impact reported amounts[244]. - There have been no material changes in critical accounting policies and estimates from those disclosed in the previous Annual Report[245]. - The company maintains director and officer insurance to cover certain liabilities arising from indemnification agreements[241]. - The company has not incurred material costs from indemnification obligations historically[242].