Here's a classic Wall Street head-scratcher: a company beats earnings, beats revenue, and its stock gets punished. That's exactly what happened to Western Digital Corp. (WDC) on Thursday, as shares tumbled despite a solid fiscal fourth-quarter report.
The culprit? Guidance. While the numbers were good, they weren't good enough for investors who have gotten used to AI-fueled blowouts. The disappointment triggered a broader selloff in AI memory and storage stocks, dragging down peers like Seagate Technology Holdings plc (STX) and Sandisk Corp. (SNDK) as well.
Earnings Snapshot
Let's dig into the numbers. Adjusted earnings more than doubled to $3.56 per share from a year earlier, comfortably beating the analyst consensus of $3.29. Revenue jumped 44% year over year to $3.75 billion, also ahead of the $3.69 billion analysts were looking for. In fact, revenue, gross margin, and adjusted earnings all met or exceeded the company's own guidance.
Shipments totaled 231 exabytes, up 22% from a year ago, driven by strong demand for nearline storage. Cloud revenue rose 43% to $3.3 billion, making up 89% of total revenue. Client revenue grew 61% to $225 million, while consumer revenue climbed 38% to $187 million.
Gross margin expanded by 13.1 percentage points to 54.4%, thanks to a richer mix of high-capacity hard disk drives, favorable pricing, and solid manufacturing execution. Operating income surged 126% to $1.66 billion, with operating margin widening to 44.2% from 28.1% a year earlier.
Cash Flow And Liquidity
Western Digital generated $3.5 billion in free cash flow during fiscal 2026 and returned $3.1 billion to shareholders through dividends and share repurchases. The company also finished monetizing its remaining 1.7 million Sandisk shares, swapping them for 4.8 million Western Digital shares.
In the fourth quarter alone, Western Digital bought back 2.3 million shares for about $1 billion. That included $328 million used to settle convertible notes in cash, which avoided issuing roughly 773,000 new shares. The company also declared a quarterly dividend of 15 cents per share, payable Sept. 17, 2026, to shareholders of record as of Sept. 8, 2026.
Key Updates
Looking ahead, Western Digital said it's on track to launch its 44TB HAMR hard disk drive in the first half of calendar 2027. Management noted that customer qualification has exceeded expectations for capacity, performance, and reliability. The company also started shipping next-generation 40TB EPMR hard disk drives during the fourth quarter, with volume production underway for two customers.
Ultra SMR technology is expanding to a third hyperscale customer and is expected to account for about 60% of nearline exabyte shipments by the end of fiscal 2027. Executives also highlighted continued demand from AI training, AI inference, agentic AI, and physical AI workloads, noting that about 80% of hyperscale data center data still lives on hard disk drives due to cost, scalability, and power-efficiency advantages.
Outlook
For the first quarter of fiscal 2027, Western Digital expects revenue of about $4.1 billion, plus or minus $100 million, representing roughly 45% year-over-year growth. The company forecasts gross margin of 55% to 56% and adjusted earnings of $3.85 to $4.15 per share, compared with the analyst consensus of $3.81. The revenue outlook of $4.0 billion to $4.2 billion compares with the consensus estimate of $4.04 billion.
Management said it expects demand across AI, cloud, and storage markets to remain strong, supported by long-term growth in data creation. The company also plans to increase exabyte shipments through technology improvements and operational efficiencies without significantly expanding manufacturing capacity, while continuing targeted investments in heads, media operations, and automation.
WDC Price Action: Western Digital shares were down 14.93% at $441.66 during premarket trading on Thursday, according to market data.
