WDC Surges 129% in 6 Months: How Should Investors Play the Stock?

Core Viewpoint - Western Digital Corporation (WDC) has experienced a significant stock rally of 128.8% over the past six months, outperforming both the Zacks Computer-Storage Devices industry and the broader market, driven by increasing demand for storage solutions and AI-powered data systems [1][8]. Performance Comparison - WDC's stock performance has surpassed competitors like NetApp, Inc. (NTAP) and Sandisk Corporation (SNDK), which gained 61.9% and 33.1% respectively, while WDC has underperformed against Seagate Technology Holdings plc (STX), which rose by 133.2% in the same period [2]. Stock Price and Market Position - As of September 15, 2025, WDC's stock closed at $102.39, nearing its 52-week high of $103.78, raising questions about the sustainability of its growth relative to its fundamentals [3]. Growth Drivers - The surge in AI workloads and cloud adoption is a primary growth driver for WDC, as the demand for scalable storage solutions increases due to the rise of Agentic AI across various industries [4]. - HDDs are highlighted as the most cost-effective and reliable storage option, essential for large-scale data infrastructure, particularly in the cloud market, which constitutes a significant portion of WDC's revenue [5]. Financial Performance - In the last reported quarter, WDC achieved a 30% year-over-year revenue growth to $2.61 billion, exceeding expectations, with a strong outlook for continued demand momentum [12]. - Non-GAAP gross margin improved to 41.3%, up 610 basis points year over year, driven by higher-capacity drive sales and effective cost management [13]. Future Guidance - WDC anticipates non-GAAP revenues of $2.7 billion for the upcoming quarter, representing a 22% year-over-year increase, with projected non-GAAP earnings of $1.54 [14]. Strategic Developments - WDC completed the separation of its HDD and Flash businesses into two independent companies, enhancing focus on their respective markets [15]. - The company has authorized up to $2 billion in share repurchases and initiated a quarterly dividend, reflecting a commitment to enhancing shareholder value [16]. Debt Management - WDC reduced its debt by $2.6 billion in the June quarter, improving its balance sheet and achieving a net leverage target of 1–1.5x [20]. - The company currently has a debt-cap ratio of 88.7%, significantly higher than the industry average, which poses challenges for future growth initiatives [19]. Market Outlook - Despite macroeconomic uncertainties, demand from hyperscale customers remains strong, and WDC is well-positioned to capitalize on ongoing storage innovations [21][26]. - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised up by 11.5% to $6.50, indicating positive market sentiment [22]. Valuation Metrics - WDC's shares are trading at a forward price/earnings ratio of 15.44, which is lower than the industry average of 21.39 but above its historical mean of 8.72, suggesting a relatively attractive valuation [25].