Core Insights - Western Digital Corporation (WDC) reported strong financial results for the second quarter of fiscal 2026, with non-GAAP earnings of $2.13 per share, exceeding estimates and showing significant year-over-year growth of 78% [1][9] - The company generated $3.02 billion in revenue, a 25% increase year-over-year, driven by robust demand in data centers and high-capacity hard disk drives (HDDs) [2][9] Financial Performance - Revenue from the Cloud end market, which constitutes 89% of total revenues, rose 28% year-over-year to $2.7 billion, reflecting strong demand for higher-capacity nearline products [6] - Non-GAAP gross margin improved to 46.1%, up 770 basis points year-over-year, supported by a transition to higher-capacity drives and effective cost management [10] - Non-GAAP operating income reached $1.02 billion, marking a 72% increase year-over-year, with margins expanding to 33.8% [11] Operational Highlights - WDC shipped over 3.5 million latest-generation ePMR drives, supporting capacities of up to 26TB CMR and 32TB UltraSMR, indicating strong customer adoption [4] - The company shipped a total of 215 exabytes to customers, a 22% increase year-over-year [4] Cash Flow and Shareholder Returns - WDC generated $745 million in cash from operations, with free cash flow amounting to $653 million, up 95% year-over-year [13] - The company repurchased approximately 3.8 million shares for $615 million and paid $48 million in dividends, returning over 100% of its free cash flow to shareholders [14] Future Outlook - For the fiscal third quarter, WDC anticipates continued growth, projecting non-GAAP revenues of $3.2 billion, a 40% increase year-over-year, and non-GAAP earnings of $2.30 per share [15] - The company expects non-GAAP gross margin to be in the range of 47-48% and operating expenses between $380 million and $390 million [16]

Financial Data and Key Metrics Changes - Revenue for the second quarter of fiscal 2026 was $3 billion, up 25% year-over-year, driven by strong demand for Nearline drives [12] - Earnings per share (EPS) was $2.13, an increase of 78% year-over-year, exceeding guidance [15] - Gross margin improved to 46.1%, up 770 basis points year-over-year and 220 basis points sequentially [13][14] - Operating income was slightly above $1 billion, translating into an operating margin of 33.8% [14] Business Line Data and Key Metrics Changes - Cloud segment represented 89% of total revenue at $2.7 billion, up 28% year-over-year [13] - Client segment accounted for 6% of total revenue at $176 million, up 26% year-over-year [13] - Consumer segment represented 5% of revenue at $168 million, down 3% year-over-year [13] Market Data and Key Metrics Changes - The company shipped over 3.5 million units of its latest generation ePMR products, offering capacities up to 32 TB [12][8] - The company delivered 215 exabytes (EB) to customers, up 22% year-over-year [12] Company Strategy and Development Direction - The company is focusing on AI and cloud storage solutions, emphasizing high-capacity drives and partnerships with hyperscale customers [7][9] - A strategic investment in Qolab was announced to advance next-generation nanofabrication processes [10] - The company is hosting an innovation day to share updated roadmaps for HAMR and ePMR products [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued demand for storage solutions driven by AI and cloud growth [5][6] - The company anticipates revenue for Q3 fiscal 2026 to be around $3.2 billion, reflecting approximately 40% year-over-year growth [17] - Management highlighted a stable pricing environment and ongoing cost reductions, projecting further gross margin expansion [22][23] Other Important Information - The company returned $1.4 billion to shareholders through share repurchases and dividends since the launch of its capital return program [16] - The board approved a quarterly cash dividend of $12.50 per share, payable on March 18, 2026 [16] Q&A Session Summary Question: Gross margin guidance and durability of incremental margin - Management confirmed a gross margin of 46.1% and guidance of 47%-48%, with incremental margins around 75% [20][22] Question: Purchase orders and pricing strategy - Management indicated strong demand and stable pricing, with long-term agreements in place with top customers [27][28] Question: Customer engagement and contracts - The company has developed a customer-centric approach, resulting in longer-term contracts and improved relationships with hyperscale customers [34] Question: UltraSMR mix and gross margins - Management noted an increasing mix of UltraSMR drives, which are beneficial for both customers and profitability [42][43] Question: Yields and reliability of products - Yields on ePMR products are in the low 90s%, with positive feedback on reliability from customers [46] Question: HAMR roadmap and investments - The company has pulled in the HAMR qualification timeline and expects it to be neutral to accretive to gross margins once ramped [55][77] Question: Revenue per exabyte and mix changes - Revenue per exabyte is driven by strong demand from the cloud segment, with stable pricing trends [81] Question: Cost reductions and future expectations - Current cost reductions are around 10% year-over-year, with potential for further reductions as higher capacity drives are adopted [87]

Core Insights - Western Digital Corporation (WDC) and Micron Technology (MU) are significant players in the memory and storage ecosystem, benefiting from the demand for NAND flash and data-center solutions driven by AI and cloud computing [2][3] - Both companies are positioned to capitalize on global data growth, but they operate in distinct segments of the data storage market [3] Western Digital (WDC) - WDC is traditionally known for HDDs and enterprise storage systems, with a growing focus on flash memory, particularly through its ePMR and UltraSMR products [3][5] - The company is experiencing increased demand for its storage solutions due to the rise of AI and data-driven workloads, leading to strong shipments of high-capacity drives [6] - WDC anticipates non-GAAP revenues of $2.9 billion for the fiscal second quarter, representing a 20% year-over-year increase [7] - The company has returned $785 million to shareholders through buybacks and dividends since launching its capital return program [8] - WDC faces challenges due to a heavy debt burden, which limits its flexibility for acquisitions and requires strong cash flow generation [10] Micron Technology (MU) - Micron is focused on DRAM, HBM, and NAND flash, benefiting from a tight supply environment driven by AI adoption and data center growth [11] - The total addressable market for HBM is projected to reach $100 billion by 2028, prompting Micron to increase capital expenditures and supply investments [11] - Micron's data center NAND revenue exceeded $1 billion in the fiscal first quarter, supported by strong demand for its SSD portfolio [13] - The company maintains a strong balance sheet with $12 billion in cash and investments, allowing for strategic acquisitions and shareholder returns [14] - Micron's earnings estimates for fiscal 2026 have been revised up 90.5% to $33.08, reflecting strong growth expectations [19] Performance and Valuation - Over the past year, MU and WDC have seen stock gains of 340.9% and 283.1%, respectively [17] - MU's shares trade at a forward P/E ratio of 10.62, significantly lower than WDC's 25.59, indicating a more attractive valuation [18] - The Zacks Consensus Estimate for MU's earnings has seen substantial upward revisions, while WDC's estimates have seen modest increases [24] Investment Considerations - Micron is viewed as the growth engine in the sector, while Western Digital may represent a turnaround opportunity, with investment choices depending on risk profiles and market confidence [25]

Core Insights - The demand for scalable and cost-efficient storage is increasing due to the acceleration of cloud computing, AI, and data-intensive workloads, with HDDs remaining essential for hyperscale data centers despite the rise of flash technology [1][8] Group 1: HDD Technology and Innovation - Areal density, which measures data storage per unit of surface area, is crucial for enhancing storage capacity in HDDs, providing a competitive edge for hyperscale data centers [2] - Seagate Technology Holdings plc (STX) is advancing areal density as a key strength, ensuring a total cost of ownership (TCO) advantage for HDDs over alternative technologies [2][4] - Seagate's high-capacity HAMR drives, including the Mozaic 3+ platform, are being adopted to meet the growing AI-driven storage demand, with drives offering up to 36TB and further advancements planned for 44TB and 5TB-per-disk technology by 2028 [3][8] Group 2: Competitive Landscape - Western Digital Corporation (WDC) remains a strong competitor in the HDD market, benefiting from its ePMR and UltraSMR drives while advancing its HAMR roadmap, with strong customer commitments extending into 2027 [5] - NetApp, Inc. (NTAP) is experiencing growth in its flash business and cloud services, supported by partnerships with major hyperscalers like Amazon and Microsoft, positioning it well in the cloud infrastructure space [6] Group 3: Financial Performance - STX's stock has increased by 217.5% over the past year, outperforming the Computer Integrated Systems industry's growth of 103.5% [7] - The current forward price/earnings ratio for STX is 27.23X, which is higher than the industry's average of 18.74X, indicating a stretched valuation [9]

Core Insights - Western Digital Corporation (WDC) is strengthening its competitive position through deepening collaborations with hyperscaler customers, driven by the accelerating growth of AI-generated data [1][9] - The company is a leading provider of mass capacity storage solutions, with increasing demand for high-capacity, cost-efficient storage as industries adopt multimodal large language models and agentic AI [1] Group 1: Customer Demand and Product Development - WDC has gained significant visibility into customer demand, with a transition to higher-capacity drives, shipping over 2.2 million units of its latest ePMR products in the September quarter, including drives offering up to 26TB CMR and 32TB UltraSMR [2][9] - All top seven customers have placed orders for WDC's next-generation HAMR drives through the first half of 2026, with one major customer securing supply for all of 2027 [3][9] - The company is on track to begin qualification of HAMR drives with one hyperscale customer in the first half of 2026, potentially expanding to three customers by year-end, positioning for volume production ramp-up in early 2027 [4] Group 2: Financial Performance and Projections - WDC anticipates ongoing revenue growth supported by strong data center demand, with non-GAAP revenues expected to reach $2.9 billion (+/- $100 million) for the second quarter of fiscal 2026, representing a 20% year-over-year increase [5] - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised upwards, indicating positive sentiment among analysts [18] Group 3: Competitive Landscape - WDC faces intense competition from Seagate Technology Holdings Plc and other flash-based alternatives, with Seagate also experiencing strong demand for its Mozaic drives, which are the only products in the industry offering 3 terabytes per disk [6][10] - Pure Storage is another significant player in the data storage space, with increasing adoption of flash storage and strong growth prospects in emerging data-driven markets [12][13] Group 4: Stock Performance and Valuation - WDC's shares have increased by 24.3% over the past month, slightly underperforming the Zacks Computer-Storage Devices industry's growth of 25.2% [14] - The company's shares are currently trading at a forward price/earnings ratio of 23.25X, higher than the industry's 21.7X [15]

Core Insights - The surge in artificial intelligence (AI) infrastructure spending is benefiting not only pure-play AI companies but also those supporting its ecosystem, such as Western Digital (WDC) [1] - Western Digital's shares have increased approximately 127% this year due to strong demand for data storage solutions driven by AI adoption [2] - The company's revenue surged by 51% in fiscal 2025, with significant gross margin expansion and strong free cash flow generation [3] Company Performance - Western Digital's stock appears undervalued relative to its growth prospects, suggesting that the momentum in WDC stock may continue [4] - The demand for scalable and cost-efficient data storage is expected to remain high, particularly with the rise of large language models (LLMs) and agentic AI [5] - Shipments of Western Digital's latest high-capacity drives, including ePMR drives (up to 26 terabytes) and UltraSMR drives (up to 32 terabytes), more than doubled to 1.7 million units last quarter [6]