Western Digital Corporation (NASDAQ:WDC) saw its shares plunge approximately 15% in premarket trading on Thursday, August 6, 2026, even after the company delivered robust quarterly earnings and issued an outlook that topped analyst expectations. The sharp selloff underscores the high bar set by investors who had driven the stock to more than triple in value during 2026, fueled by optimism around artificial intelligence (AI) demand and pricing power.
The company reported fiscal fourth-quarter revenue of $3.747 billion, a 43.8% increase year-over-year, while adjusted earnings per share came in at $3.56, surpassing consensus estimates by 7.9%. Revenue also beat forecasts by 1.5%. However, the market's reaction focused on the company's guidance for the fiscal first quarter, which implied a sequential gross margin expansion of just 1.1 percentage points, a marked deceleration from the 3.9-point gain achieved in the fourth quarter.
This margin outlook tempered enthusiasm for the company's AI-driven growth story. The implied revenue per shipped terabyte rose 18.3% year-over-year, consistent with management's characterization of a "high-teens" price increase. Total exabytes shipped grew 21.6% to 231, with nearline exabytes up 22.9% to 209. The combination of higher volume and improved pricing led to a non-GAAP gross margin of 54.4% for the quarter.
For the fiscal first quarter, Western Digital forecasts revenue of $4.100 billion and adjusted EPS of $4.00, both ahead of consensus estimates of $4.040 billion and $3.81, respectively. This implies 9.4% sequential revenue growth and 12.4% EPS growth, reflecting continued operating leverage but limited upside surprise.
Cash generation remained strong, with free cash flow reaching $1.281 billion, or 34.2% of revenue, and full-year free cash flow of $3.511 billion. CEO Irving Tan highlighted accelerating data creation, noting the company is now shipping 40-terabyte ePMR drives, with 44-terabyte HAMR drives expected to begin shipping in the first half of 2027.
Cloud customers accounted for 89% of revenue, underscoring concentration risk. Management pointed to customer agreements extending through 2031, providing visibility but also making renewal pricing a key focus. The company's strong performance has attracted a bullish analyst consensus, with 23 of 30 analysts rating the stock Buy or Overweight, though price targets vary widely from $450 to $1,050, reflecting divergent views on normalized margins.
The selloff extended to other storage names: Sandisk Corporation (NASDAQ:SNDK) fell 9.2%, Seagate Technology (NASDAQ:STX) slipped 3.6%, and Micron Technology (NASDAQ:MU) shed 3.7%. The Philadelphia Semiconductor Index, which had gained nearly 70% in 2026, also faced pressure.
Investors interpreted the report as a signal about pricing and margins rather than weakening demand. The 18.3% increase in revenue per terabyte continues to underpin earnings, but the expected moderation in margin growth suggests the AI-driven pricing boom may be peaking. As a result, storage stocks are recalibrating to more sustainable growth trajectories.
