Why Western Digital's Stock Is Outperforming The S&P 500 In 2025?

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$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$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]