Key Takeaways WDC's fiscal Q1 2026 gross margin jumped to 43.9%, reflecting favorable mix, pricing strength and execution.Hyperscaler demand lifted shipments to 204 exabytes, led by rapid adoption of ePMR and UltraSMR HDDs.WDC guided Q2 gross margin of 44-45% with revenues seen up 20% year over year at the midpoint.Western Digital Corporation (WDC) is delivering strong gross margin expansion, driven by a favorable product mix, healthy pricing dynamics, disciplined cost controls and improved operational effi ...

Accelerating digital transformation, edge computing, proliferation of AI workloads and enterprise cloud adoption are driving demand for reliable, scalable and cost-efficient data storage solutions, supporting long-term growth for the Zacks Computer-Storage Devices industry. As hyperscalers double down on AI clusters, companies like Western Digital (WDC) are benefiting from orders for high-capacity hard disk drives (HDDs) and enterprise solid-state drives (SSDs) and emerging storage architectures. HDDs remai ...

Key Takeaways Western Digital invested in Qolab to develop nanofabrication to improve qubit performance and scalability.WDC partnership supports U.S. tech leadership, boosting domestic nanofabrication and semiconductor research.The Qolab investment won't affect near-term results but positions Western Digital for quantum-led growth.Western Digital Corporation’s (WDC) strategic investment in Qolab is poised to enhance its long-term growth potential by giving the company early exposure to emerging quantum comp ...

Core Viewpoint - Super Micro Computer (SMCI) has experienced an 8.9% decline in share price over the past year, significantly underperforming the Zacks Computer-Storage Devices industry's return of 53.5%, raising questions about whether investors should hold or exit the stock [1] Financial Performance - SMCI's first-quarter revenues and earnings fell by 15.5% and 56%, respectively, primarily due to a revenue shift from the September quarter to the December quarter, not due to demand weakness [4] - The company reported a negative free cash flow of $950 million for the first quarter of fiscal 2026, attributed to higher receivables from new deals with larger customers [5] - SMCI's first-quarter fiscal 2026 closing inventory increased to $5.7 billion from $4.7 billion in the previous quarter, leading to an increase in the cash conversion cycle from 96 days to 123 days [7] - The Zacks Consensus Estimate for SMCI's second-quarter fiscal 2026 earnings is projected at 49 cents per share, indicating a year-over-year decline of 19.7% [8] Operational Challenges - SMCI is facing operational challenges due to a massive scale-up required to meet unprecedented AI rack demand, planning to roll out 6,000 racks per month [6] - The company is grappling with customer concentration issues and margin pressure from mega deals with larger customers [5][9] Competitive Landscape - Rising competition from major players like Pure Storage, Dell Technologies, and Hewlett Packard Enterprise poses a concern for SMCI, particularly in the storage and AI-optimized server markets [10][12] - Price competition and adjustments are increasing as competition intensifies [12] Growth Opportunities - SMCI's high-performance and energy-efficient servers are gaining traction among AI data centers and hyperscalers, supported by partnerships with NVIDIA and AMD [13] - The Data Center Building Block Solutions (DCBBS) is expected to carry more than 20% margins and become a significant long-term profit contributor [14] - The company aims for $36 billion in fiscal 2026 revenues, driven by new product launches and innovations [16] Valuation - SMCI is currently trading at a discounted valuation, with a forward 12-month price-to-earnings (P/S) ratio of 0.52X, lower than the sector average of 1.89X [17]

Core Insights - Pure Storage (PSTG) reported third-quarter fiscal 2026 non-GAAP earnings per share (EPS) of 58 cents, missing the Zacks Consensus Estimate of 59 cents, but up from 50 cents in the prior-year quarter [1] - The company generated $964.5 million in revenues, a 16% year-over-year increase, surpassing management's expectations and the consensus mark [2] - Pure Storage raised its fiscal 2026 revenue outlook to $3.63–$3.64 billion, indicating 14.5–14.9% year-over-year growth [4] Financial Performance - Product revenues amounted to $534 million, up 18% year-over-year, contributing 55.4% to total revenues [7] - Subscription services revenues rose 14% to $430 million, accounting for 44.6% of total revenues [7] - Subscription annual recurring revenues (ARR) reached nearly $1.8 billion, up 17% year-over-year [8] Operational Highlights - The company exceeded its full-year goal of 2 exabytes of hyperscale shipments in the fiscal third quarter and anticipates further shipments in the fiscal fourth quarter [3] - Non-GAAP gross margin improved to 74.1% from 71.9% in the prior-year quarter, with product gross margin at 72.9% [12] - Non-GAAP operating income was $196.2 million, exceeding the outlook and up from $167.3 million in the year-ago quarter [13] Cash Flow and Shareholder Returns - Pure Storage ended the fiscal third quarter with cash and cash equivalents of $1.5 billion, unchanged from the previous quarter [14] - Cash flow from operations was $116 million, compared to $97 million in the prior-year quarter, with free cash flow at $52.6 million [14] - The company returned $53 million to shareholders through share repurchases during the quarter [15] Future Guidance - For fiscal Q4, Pure Storage expects revenues in the range of $1.02-$1.04 billion, indicating a 17.1% increase at the midpoint from the year-ago level [16] - Non-GAAP operating income is projected to be $220-$230 million, reflecting around 47% year-over-year growth at the midpoint [16]

Core Insights - The global data storage market is projected to reach $1,304.7 billion by 2033, growing at a CAGR of 16.44% from 2025 to 2033, driven by business automation, cloud computing, and remote work trends [2] - Western Digital Corporation (WDC) and Pure Storage, Inc. (PSTG) are positioned to benefit from these trends, but their differing business models and financial metrics present varying investment opportunities [2] Group 1: Western Digital Corporation (WDC) - WDC is strategically focused on supporting the data-intensive AI ecosystem, meeting the increasing demand for storage with solid financial performance [3][4] - The company shipped 204 exabytes in the last quarter, a 23% year-over-year increase, and is set to introduce next-generation ePMR drives in early 2026 to meet rising data demands [4][7] - WDC anticipates continued revenue growth due to strong data center demand and higher-capacity drive adoption, with AI applications driving ongoing demand for scalable data infrastructure [5][8] - The company raised its quarterly dividend by 25% to 12.5 cents, returning $785 million to shareholders since FY25, indicating strong financial health and commitment to shareholder returns [7][8] - WDC's shares trade at a forward P/E ratio of 19.45, significantly lower than PSTG's 82.84, highlighting its valuation appeal [7][18] Group 2: Pure Storage, Inc. (PSTG) - PSTG benefits from increasing adoption of its Enterprise Data Cloud architecture and strong traction with hyperscalers, maintaining a positive outlook despite macroeconomic uncertainties [10][11] - The company’s platform, powered by the Purity operating system, supports non-disruptive services and the Storage-as-a-Service model, enhancing its market position [11] - PSTG's FlashBlade solutions are in high demand, supporting its growth in handling AI-driven applications and modern workloads [12][13] - The company added over 300 new customers in the fiscal second quarter, bringing its total to more than 13,500, including 62% of the Fortune 500 [13] - PSTG faces competition in the flash storage market, which may impact pricing and margins, and it has an accumulated operating loss of $1.35 billion [15] Group 3: Comparative Performance and Outlook - Over the past year, WDC's stock has increased by 120.6%, outperforming PSTG and the broader industry [17] - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised up by 13% to $7.38, while PSTG's estimate remains stagnant at $1.97 [19][23] - WDC holds a Zacks Rank 1 (Strong Buy), while PSTG has a Zacks Rank 3 (Hold), suggesting WDC is currently a more attractive investment option [24]

Core Viewpoint - Super Micro Computer (SMCI) shares have declined by 18.4% over the past six months, significantly underperforming the Zacks Computer-Storage Devices industry's return of 77.5, raising questions about whether investors should buy, hold, or sell the stock [1][10]. Group 1: Operational Challenges - SMCI is facing significant operational challenges despite strong demand driven by AI, with gross margins expected to drop sharply due to the ramp-up of mega-scale GB300 Blackwell clusters [4]. - The company is experiencing margin pressure due to customer concentration and the need to retain larger customers, leading to higher receivables and a negative free cash flow of $950 million for the first quarter of fiscal 2026 [5]. - SMCI's working capital issues are exacerbated by the operational scale-up required to meet unprecedented AI rack demand, with plans to roll out 6,000 racks per month, including 3,000 liquid-cooled racks, and expand facilities in multiple regions [6]. Group 2: Financial Metrics - SMCI's first-quarter fiscal 2026 closing inventory was $5.7 billion, an increase from $4.7 billion in the previous quarter, causing the cash conversion cycle to spike from 96 days to 123 days [7]. - The company projects a sequential decline of 300 basis points in gross margin for the second quarter of fiscal 2026, with the Zacks Consensus Estimate for earnings at 49 cents per share, indicating a year-over-year decline of 19.7% [12]. Group 3: Competitive Landscape - Rising competition from major players in the storage and server space, such as Pure Storage, Dell Technologies, and Hewlett Packard Enterprise, poses a significant concern for SMCI, impacting pricing and execution [8][11]. - Pure Storage offers modern storage solutions that enhance performance and cloud integration, while Dell and HPE provide a range of server services, intensifying price competition in the market [9][11]. Group 4: Market Sentiment - SMCI shares are currently trading below both the 200-day and 50-day moving averages, indicating a bearish trend in the stock [15]. - Despite the long-term AI opportunities, the company's near-term challenges, including margin pressure and heavy working-capital needs, make it highly volatile, leading to a Zacks Rank 5 (Strong Sell) [16].

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]

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]

Core Viewpoint - Pure Storage is expected to show strong earnings growth in its upcoming earnings report, with significant increases in both EPS and revenue compared to the previous year [2][3]. Group 1: Stock Performance - In the latest trading session, Pure Storage (PSTG) declined by 3.55% to $95.10, underperforming the S&P 500's daily loss of 1.17% [1]. - Over the past month, shares of Pure Storage have increased by 9.16%, outperforming the Computer and Technology sector's gain of 5.49% and the S&P 500's gain of 2.12% [1]. Group 2: Earnings Estimates - Pure Storage is projected to report an EPS of $0.59, reflecting an 18% growth year-over-year [2]. - The consensus estimate for revenue is $956.49 million, indicating a 15.09% increase from the same quarter last year [2]. - For the full year, earnings are estimated at $1.97 per share and revenue at $3.62 billion, showing increases of +16.57% and +17.56% respectively from the previous year [3]. Group 3: Analyst Sentiment - Recent adjustments to analyst estimates for Pure Storage indicate a positive outlook, suggesting confidence in the company's performance and profit potential [3]. - The Zacks Rank system currently rates Pure Storage as 2 (Buy), reflecting a positive sentiment among analysts [5]. Group 4: Valuation Metrics - Pure Storage has a Forward P/E ratio of 50.05, significantly higher than the industry average of 19.98, indicating that it is trading at a premium [6]. - The company's PEG ratio stands at 2.98, compared to the industry average PEG ratio of 2.05, suggesting a higher valuation relative to expected earnings growth [7]. Group 5: Industry Context - The Computer-Storage Devices industry, to which Pure Storage belongs, is ranked 40 in the Zacks Industry Rank, placing it in the top 17% of over 250 industries [7]. - The Zacks Industry Rank indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1, highlighting the potential for growth in this sector [8].