Can WDC's Revenue Momentum Continue on Rising Cloud and AI Demand?

Core Insights - Western Digital Corporation (WDC) has entered fiscal 2026 with strong momentum, driven by robust demand from cloud and AI workloads, reporting revenues of $2.82 billion for the first quarter, a 27% increase year over year [1] - The company anticipates ongoing revenue growth in the second quarter of fiscal 2026, projecting non-GAAP revenues of $2.9 billion, a 20% year-over-year increase [5] Financial Performance - For the first quarter of fiscal 2026, WDC reported non-GAAP EPS of $1.78 and a gross margin of 43.9%, both exceeding guidance [1] - The cloud end market, which constitutes 89% of total revenues, saw a 31% increase, driven by demand for higher-capacity nearline products [1] - WDC shipped 204 exabytes of storage, a 23% year-over-year increase, with significant demand for its latest ePMR products [3] Market Trends and Opportunities - The proliferation of generative AI is expected to drive a refresh cycle in client and consumer devices, boosting content growth across various sectors including smartphones and gaming [2] - Increased AI adoption is likely to enhance storage demand for both HDD and Flash technologies, presenting ample business opportunities [2] - WDC's next-generation HAMR drives are set to capitalize on this trend, with all top seven customers placing purchase orders through the first half of 2026 [4] Competitive Landscape - WDC faces competition from companies such as Seagate Technology, Hitachi, Samsung, and Intel, which are also benefiting from strong cloud demand and AI-driven applications [6][7] - Seagate has ramped up shipments of its Mozaic HAMR products, projecting second-quarter fiscal 2026 revenues of $2.7 billion, a 16% year-over-year increase [8] Valuation and Market Performance - Over the past three months, WDC shares have surged 106.2%, outperforming the Zacks Computer-Storage Devices industry, which grew by 43.3% [11] - WDC's shares are currently trading at a forward price/earnings ratio of 22.47X, higher than the industry's 21.12X [12] - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised up by 13.5% to $7.38 over the past 60 days [13]