Western Digital Stock Forecast: Can WDC Still Rise After Shares Slide Despite Earnings Surge?

Western Digital's latest earnings report showed that the company's performance continues to benefit from the AI data center buildout cycle, with revenue, margins, and cash flow all showing significant improvements. This indicates that the storage industry is gradually emerging from its previous downturn and benefiting from incremental demand driven by artificial intelligence.

According to the earnings report, Western Digital's fiscal third-quarter revenue reached $3.34 billion, up 45% year-over-year. Adjusted earnings per share reached $2.72, up 97% year-over-year, beating market expectations. Meanwhile, the company's gross margin improved significantly, with the GAAP gross margin reaching 50.2% and the non-GAAP gross margin reaching 50.5%, both up sharply from the same period last year. This reflects how a recovery in storage prices and an increasing mix of high-value products are boosting profitability.

From the segment breakdown, the data center business has become a key driver of growth for Western Digital. With the rapid development of AI model training, inference, and enterprise AI applications, cloud computing providers continue to expand data center investments, significantly increasing the demand for high-capacity storage. Leveraging its high-capacity hard disk drives (HDDs) and enterprise storage product portfolio, Western Digital has benefited from the growing demand for storage driven by AI infrastructure buildout.

Company management stated that AI is driving rapid growth in global data generation, and demand from data centers for high-capacity, low-cost storage solutions will remain strong over the next few years. Compared to the traditional consumer electronics market, the data center business offers higher stability, becoming an important avenue for Western Digital to improve its profitability profile.

In terms of cash flow, the company's operating cash flow reached $1.12 billion this quarter, and free cash flow reached $978 million, indicating that its cash generation capability has strengthened significantly alongside improving profitability. For storage companies, an improvement in free cash flow means the company is better positioned to navigate industry cyclical fluctuations and support future R&D and capital expenditures.

Looking ahead, the company expects next-quarter revenue to be around $3.65 billion, with the non-GAAP gross margin projected to remain in the 51% to 52% range, and adjusted EPS expected to reach approximately $3.25. This indicates that management expects the trend of improving AI storage demand and industry pricing to continue.

From a long-term perspective, AI data center buildout remains a key investment thesis supporting Western Digital's stock price.

As Microsoft ( MSFT ), Google ( GOOGL ), Amazon ( AMZN ), Meta ( META) and other tech giants continue to expand their investments in AI infrastructure, data volume is growing rapidly, driving continuous growth in demand for low-cost, high-capacity storage. Compared to traditional PC and consumer electronics markets, storage demand in AI data centers is more stable, making it a key driver for Western Digital's future growth.

In recent years, Western Digital has focused on developing high-capacity HDD products, especially in the cloud computing and hyperscale data center markets. The company's third fiscal quarter data shows that revenue growth came from multiple end markets, and its gross margin increased by more than 10 percentage points year-over-year, indicating that an improved product mix is driving profitability gains.

The market generally believes that AI data center buildout is still in a long-term expansion phase, and storage demand will continue to benefit. However, Wells Fargo analysts also warned that the storage industry is highly cyclical, and future stock performance will depend on whether AI demand growth can offset the pressure from increased industry supply.

For investors, three key factors should be watched for Western Digital's future upside: First, whether demand from AI data centers can continue to grow. If cloud computing companies continue to increase investments in AI infrastructure, demand for high-capacity storage will continue to rise, and Western Digital is expected to secure more orders. Second, whether gross margins can remain at a high level. Profitability in the storage industry has historically been highly volatile; if the company can maintain a gross margin of over 50% through product mix optimization and cost control, the market may grant it a higher valuation. Third, whether the improvement in cash flow can be sustained, which would help boost investor confidence in the company's financial health.

Western Digital stock price daily chart, Source: TradingView

Looking at the daily chart of Western Digital's stock price, the stock plummeted 13% on Thursday, hitting a low of $407.48, which is near the 144-day moving average. The daily candlestick closed positive, indicating that the stock price has found some support at this level and signaling a potential halt to the decline. Consequently, the probability of a short-term technical rebound has increased.

On the downside, the primary support levels to watch below are the 144-day moving average and the $400 mark. If the stock price consistently fails to break below the $400 mark, the likelihood of a short-term rebound will increase significantly; if the stock breaks below $400, it may decline further to test the support level around $360-$310.

On the upside, the primary target for a rebound will be to fill the $519-$451 gap. Key resistance above to watch is the recent rebound high of $580, followed by the $600 mark. If the stock price breaks out and stabilizes above $600, the upside potential toward $800 will be unlocked.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.