Key Highlights

  • Fiscal Q4 2026 Revenue rose 44% to $3.75 billion, with non-GAAP gross Margin of 54.4% and non-GAAP EPS of $3.56.
  • WD guided fiscal Q1 2027 revenue to $4.1 billion plus or minus $100 million and non-GAAP EPS of $4.00 plus or minus $0.15.
  • Cloud made up 89% of revenue; WD's HAMR drives are expected in the first half of 2027, behind Seagate.
  • WD trades at about 17 times forward earnings, compared with about 23 times for Seagate, a gap tied partly to WD's later HAMR timing.

Western Digital (NASDAQ:WDC) is riding Demand for AI-related data storage by selling ever-larger hard disk drives to the cloud operators building out data centers, and that demand lifted its revenue 44% in its latest quarter. The company, which now brands itself as WD while keeping the WDC ticker, reported fiscal fourth-quarter revenue of $3.75 billion on Aug. 5, up from about $2.61 billion a year earlier.

Cloud customers accounted for 89% of fourth-quarter revenue, underscoring how thoroughly the Business has shifted toward hyperscale data centers. Exabyte shipments grew 22% year over year while cost per terabyte fell about 8%, a combination that helped push margins to levels well above the company's recent history.

Management expects the momentum to continue. WD guided fiscal first-quarter 2027 revenue to $4.1 billion, plus or minus $100 million, which would mark another sequential step up. The key question for investors is how long the current tight market for high-capacity drives lasts, and whether WD's more cautious approach to next-generation technology leaves room for its main rival to pull ahead.

Inside the Record Fourth Quarter

Beyond revenue growth, the Aug. 5 release showed a sharp improvement in profitability. Non-GAAP gross margin reached 54.4%, with GAAP gross margin at 54.1%. Non-GAAP diluted Earnings came to $3.56 per share, while GAAP diluted earnings were $8.21 per share, reflecting items the company excludes from its adjusted measure. Operating Cash Flow was $1.39 billion and free cash flow was $1.28 billion.

For the full fiscal year 2026, revenue totaled $12.919 billion, up 36%, with non-GAAP gross margin of 49.1%. The company also declared a quarterly Dividend of $0.15 per share, payable Sept. 17.

Chief Executive Irving Tan said WD concluded fiscal 2026 with strong performance and enters fiscal 2027 "with continued confidence." Chief Financial Officer Kris Sennesael cited "broadening demand" and deeper customer engagement, and pointed to the expansion of cloud and other data-intensive workloads as a driver of long-term growth.

Guidance Above Expectations, Yet a Stock Pullback

Results beat Wall Street forecasts. The $3.56 non-GAAP EPS topped a consensus estimate of $3.29 and revenue exceeded the $3.69 billion consensus. The first-quarter outlook called for non-GAAP EPS of $4.00, plus or minus $0.15, and non-GAAP gross margin of 55% to 56%. Both the EPS and revenue guidance midpoints sat above consensus figures of $3.81 and $4.01 billion, respectively.

Even so, the shares fell 8.89% to $473 in after-hours trading following the release. The reaction suggested that, after a large run in storage stocks, investors had already priced in strong numbers and were looking for a bigger step up.

How AI Is Reshaping Storage Demand

Training and running large AI models generates vast amounts of data that must be stored cheaply and at scale. While solid-state drives handle much of the performance-sensitive work, high-capacity hard drives remain the lowest-cost option for bulk data, which is why hyperscale cloud providers have been buying them in large volumes.

WD has become a pure-play hard drive company since separating its flash business, Sandisk (NASDAQ:SNDK), in February 2025. That focus means its results now track Data Center storage demand much more directly than in the past. The company is currently shipping 40-terabyte drives based on energy-assisted perpendicular magnetic recording, or ePMR.

The Economics of that shift matter as much as the volumes. Selling higher-capacity drives lets WD ship more exabytes without a matching increase in the number of units, so falling cost per terabyte can translate into wider margins when pricing holds firm. That dynamic is visible in the jump from full-year non-GAAP gross margin of 49.1% to 54.4% in the fourth quarter alone, and in the 55% to 56% range the company has guided for the current quarter. It also means WD's profitability is now closely tied to how disciplined the industry remains in adding new production capacity.

The Seagate Rivalry and the HAMR Question

The hard drive market is effectively a contest between WD and Seagate (NASDAQ:STX), and the two are pursuing different technology timelines. Seagate has moved first on heat-assisted magnetic recording, or HAMR, which allows higher storage densities. Seagate's 44-terabyte Mozaic 4 drives were shipping for revenue to 75% of its top cloud customers as of March, with a 50-terabyte Mozaic 5 planned for late 2027.

WD's own 44-terabyte HAMR drive is expected to ship in the first half of calendar 2027, and the company has framed its later arrival as disciplined execution. The two companies' near-term outlooks are strikingly similar: Seagate reported fiscal fourth-quarter revenue of $3.63 billion, up 48.5%, and also guided to about $4.1 billion for its next quarter.

On valuation, WD trades at about 17 times forward earnings, compared with about 23 times for Seagate, a gap tied partly to WD's later HAMR timing.

Risks to the Growth Story

  • Cyclicality: Storage has historically been a boom-and-bust industry. If cloud customers slow purchases or Supply catches up with demand, pricing and margins could come under pressure.
  • Customer concentration: With cloud representing 89% of quarterly revenue, WD is heavily exposed to spending decisions by a small number of hyperscalers.
  • Technology timing: Any slip in the HAMR schedule could widen Seagate's lead in the highest-capacity drives.
  • Elevated expectations: The after-hours drop following a beat-and-raise quarter shows how high the bar has become.

On the other side, WD's margin expansion, strong free cash flow and guidance above consensus indicate that current demand remains robust.

WD's Fiscal First-Quarter Report and the HAMR Ramp

WD's fiscal first quarter ends in early October, and the company's report, typically released in late October, will show whether revenue reaches the $4.1 billion guidance and whether gross margin lands in the 55% to 56% range. Investors will also look for updates on HAMR qualification with cloud customers ahead of the targeted first-half 2027 shipments, commentary on pricing and long-term supply arrangements, and any change in Capital return plans. Seagate's next results will offer a useful read-across on industry demand.