Should You Buy Western Digital Stock After a 114.1% Rally in 3 Months?

Core Insights - Western Digital Corporation's (WDC) shares have surged 114.1% in the past three months, significantly outperforming the Zacks Computer-Storage Devices industry and the S&P 500 [1][9] - The rapid growth of AI is driving strong demand for high-capacity storage solutions, leading to record shipment levels and improved gross margins for WDC [1][10] Performance Comparison - WDC has outperformed competitors like Seagate Technology Holdings plc (STX) and Micron Technology (MU), which saw stock increases of 65.5% and 98.3% respectively, but lagged behind Sandisk Corporation (SNDK), which rose 496.4% [2] - The company reported a 52-week high stock price of $178.45, raising questions about future upside potential [5] Business Strategy and Market Position - WDC has separated its HDD and Flash businesses into two independent companies to enhance focus on their respective markets [4] - As a leader in HDD technology, WDC is positioned to meet the increasing data storage demands driven by AI, with a year-over-year revenue growth of 27% and a net income growth of 137% for fiscal 2026 [6] Demand Drivers - The demand for high-capacity storage is being fueled by the rise of AI, with WDC's ePMR and UltraSMR products seeing significant uptake [9][11] - The company is expanding its ePMR technology and advancing manufacturing processes to meet the growing exabyte demand [11][12] Financial Performance - WDC reported a non-GAAP gross margin of 43.9% in the fiscal first quarter, with expectations for 44-45% in the second quarter [14][15] - The company generated $672 million in operating cash flow and repurchased 6.4 million shares for $553 million, reflecting strong financial execution [16] Future Outlook - WDC anticipates ongoing revenue growth driven by strong data center demand and the adoption of high-capacity drives [13] - The company has a solid order pipeline extending through 2027, with all major customers placing orders, indicating confidence in its product roadmap [12][21] Valuation Metrics - WDC's shares are trading at a price/earnings ratio of 20.24, which is lower than the industry average of 20.38 but above its historical mean of 9.74 [20] Estimate Revisions - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has increased by 13.2% to $7.38, while the estimate for fiscal 2027 has risen by 37.2% to $9.84 [19]