Western Digital Soars 51.8% in the Past 3 Months: How to Play the Stock?

Core Insights - Western Digital Corporation (WDC) shares have increased by 51.8% over the past three months, significantly outperforming the Zacks Computer-Storage Devices industry, which rose by 13.3% [1] - The surge in WDC's stock is primarily driven by strong demand in cloud services and AI-related storage needs [1][8] - WDC has outperformed competitors such as Seagate Technology Holdings (STX), Pure Storage (PSTG), and NetApp (NTAP) during the same period [2] Company Growth Trends - WDC has transitioned to a pure-play HDD company following the spinoff of its Flash/SSD business into SanDisk, enhancing its margins and cash flow [4] - The company shipped 190 exabytes in the last quarter, a 32% year-over-year increase, driven by demand for nearline drives and high-capacity products [5] - WDC's ePMR and UltraSMR technologies are noted for their reliability and low total cost of ownership, with next-generation HAMR drives expected to qualify by 2027 [5][10] Financial Performance - WDC reported a non-GAAP gross margin of 41.3%, up 610 basis points year-over-year, exceeding guidance due to higher-capacity drive sales [12] - Operating expenses decreased by 16% to $345 million, indicating improved efficiency and business momentum [12] - The company has initiated a $2 billion share buyback program and started a quarterly cash dividend, repurchasing approximately 2.8 million shares for $149 million in the fiscal fourth quarter [13] Market Position and Competitive Landscape - WDC remains a key player in the global data storage market, with HDDs being the most cost-effective option for large-scale storage [5][10] - The rapid growth of AI is enhancing WDC's platforms business, which focuses on high-density systems for infrastructure providers [11] - Competitors like Seagate are advancing with HAMR technology to meet rising storage demands, while WDC emphasizes hardware solutions [14][15] Future Outlook - WDC anticipates continued revenue growth and increased profitability due to rising demand for high-capacity drives [9] - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised up by 13.4% to $6.50, indicating positive market sentiment [19] - Despite macroeconomic challenges, WDC is well-positioned to benefit from emerging market dynamics and strong product demand [21]