Western Digital Corp. (NASDAQ:WDC) stock fell in premarket trading Friday after declining more than 6% Thursday, despite the company reporting better-than-expected fiscal first-quarter 2027 earnings and issuing upbeat guidance.

Investors weighed rising capital spending, higher input costs and concerns about the sustainability of artificial intelligence-driven data center demand against the company's strong operating performance.

Still, Western Digital shares have gained 106% in 2026, fueled by growing demand for high-capacity hard disk drives (HDDs) used in AI data centers.

Strong Demand Meets Supply Constraints

Wedbush analyst Matt Bryson maintained an Outperform rating and a $650 price forecast, citing Western Digital's strong quarterly results and outlook.

During a CNBC interview Friday, Bryson said broader concerns about AI infrastructure spending, rather than company-specific weakness, were weighing on the stock.

He estimated that the hard-drive market faces a shortage of roughly 400 exabytes, representing more than 20% of total market capacity, as major cloud customers seek additional storage.

Bryson expects supply constraints to persist even if power shortages, financing challenges or regulatory hurdles delay data center construction.

AI Spending Concerns Remain In Focus

Bryson also highlighted strong returns on data center investments at smaller neocloud providers.

He said investment payback periods of less than one year suggest that demand for computing capacity remains strong enough to support continued infrastructure spending.

However, Bloomberg reported that Vital Knowledge questioned whether data center spending could maintain its current pace and whether large order backlogs would translate into actual revenue.

The concerns reflect broader investor uncertainty about the sustainability of the AI infrastructure boom.

Capital Spending Surges As Western Digital Expands Capacity

Western Digital more than tripled its capital spending during the fiscal first quarter as it invested in higher-capacity hard drives.

The increased spending contributed to a roughly 3-percentage-point decline in free cash flow margin, according to Bloomberg Intelligence.

Chief Financial Officer Kris Sennesael said capital expenditures should average about 4% to 6% of revenue over the next five years.

However, he expects spending to run modestly above that range over the next two years as the company expands capacity to meet demand.

Strong Outlook And Dividend Increase

Western Digital forecast fiscal second-quarter adjusted earnings of as much as $6 per share, well above analysts' consensus estimate of $4.80.

The company also raised its quarterly dividend by 17%, signaling confidence in its cash generation despite rising investment requirements.

"We are executing well to meet the growing demand for storage," CEO Irving Tan said.

The strong outlook underscores continued demand for AI-related storage. However, investors remain focused on rising costs, capital spending and whether data center investments can sustain their momentum.

WDC Price Action: Western Digital shares were down 1.22% at $349.88 during premarket trading on Friday, according to market data.