Western Digital (WDC) shares jumped approximately 6% to $469.44 in late Tuesday morning trading, as investors refocused on the company's pivotal role in AI-driven data center storage. The stock opened at $455.61 and touched an intraday high of $479.94, bringing it within striking distance of the $500 mark.
The rally reflects a shift in market perception: Western Digital is no longer viewed as a legacy PC storage player but as a key supplier of high-capacity hard disk drives (HDDs) essential for AI data centers. Cloud customers require massive storage to house the enormous datasets generated by AI models, positioning HDDs as critical infrastructure.
On Monday, Western Digital reported fiscal third-quarter revenue of $3.34 billion, up 45% year-over-year and above the consensus estimate of $3.25 billion. Adjusted earnings came in at $2.72 per share, surpassing the $2.39 expected by analysts. Cloud revenue accounted for 89% of total sales, underscoring the company's deep integration with hyperscale cloud providers.
Chief Executive Irving Tan highlighted that gross margin "exceeded 50%" and described the demand environment as "clear." Operating cash flow reached $1.12 billion, while free cash flow after capital expenditures totaled $978 million. The board approved a 20% increase in the quarterly dividend, raising it to 15 cents per share.
For the fiscal fourth quarter, Western Digital forecast revenue of $3.65 billion, plus or minus $100 million, well ahead of the $3.46 billion analysts had anticipated. The company also guided for a non-GAAP gross margin of 51.5% and adjusted earnings of $3.25 per share. CFO Kris Sennesael noted that the business "continues to strengthen" with "visibility extending."
Initially, the stock dipped following the earnings release, as some investors had hoped for an even stronger outlook after the sector's recent surge. Michael Ashley Schulman, a partner at Cerity Partners, remarked that Western Digital and Sandisk did not deliver the "wow factor" needed to sustain their rally.
Analysts, however, have been raising their price targets. Rosenblatt's Kevin Cassidy lifted his target to $500 from $340, maintaining a Buy rating and citing "another strong beat-and-raise" quarter with gross margins above 50%.
Peer Seagate reported fiscal third-quarter revenue of $3.11 billion, with non-GAAP gross margin of 47.0% and adjusted EPS of $4.10. Seagate guided for fourth-quarter revenue of $3.45 billion and adjusted EPS of $5.00. Sandisk, which was spun off from Western Digital in 2025, also issued a better-than-expected revenue forecast for the fourth quarter, reflecting sustained AI data-center storage demand.
Despite the bullish sentiment, valuation remains a concern. 24/7 Wall St. has set a price target of $512.93 for Western Digital but flags a downside scenario of $370.77 if cloud customers pull back, margins face pressure, tariffs impact operations, or NAND flash memory displaces HDDs at the high end.
For now, the market is treating Western Digital as an AI infrastructure play, benefiting from pricing power and supply constraints. While this setup offers upside potential, it leaves little room for an underwhelming quarter.
