Story Stocks^®

Western Digital (WDC) rebounded to a new record high before pulling back a bit after handily beating expectations and issuing upside guidance in its Q3 (Mar) report last night. The high-capacity HDD storage supplier's EPS nearly doubled yr/yr, while revenue surged 45.5% yr/yr to $3.38 bln. Additionally, for Q4, WDC expects EPS of $3.10-3.40 and revenue of $3.55-3.75 bln, implying roughly 96% and 40% growth at the midpoints, respectively.

• WDC saw broad growth across cloud, consumer, and client, but hyperscaler demand for higher-capacity drives remained the clear standout, with cloud revenue increasing 48% yr/yr to $3.0 bln.
• Data and data storage are becoming more critical as AI workloads extend from training to large-scale inference. WDC expects inference to account for roughly two-thirds of AI compute this year, increasing data generation and the need for persistent, scalable storage, much of which is stored on HDDs.
• WDC delivered 222 exabytes to customers, up 34% yr/yr, including 118 exabytes of latest-generation ePMR products. Its roadmap is advancing, with 44TB HAMR in qualification with four customers and 40TB ePMR qualifying with three, with volume production still on track for 2HCY26.
• UltraSMR adoption is expanding, with three of WDC's largest customers now using the ePMR and HAMR compatible technology. WDC expects all major customers to be qualified by the end of CY27.
• Adjusted gross margin expanded 1,040 bps yr/yr and 440 bps sequentially to 50.5%, well above guidance for 47-48%, driven by higher-capacity mix and favorable pricing. WDC expects further improvement in Q4, guiding margin to 51-52%.
• Looking ahead, WDC sees agentic AI as another structural driver, shifting AI from answering questions to continuously executing workflows. That transition increases data generation, extends retention cycles, and supports an increase in capacity-oriented storage demand.

Briefing.com Analyst Insight

This was a very strong quarter from WDC and further demonstrated the powerful tailwinds behind high-capacity HDDs as AI workloads continue to scale. Accelerating cloud revenue, rapidly expanding margins, and progress across its HAMR/ePMR roadmap and UltraSMR adoption reflect strong demand, favorable pricing, and solid execution. Additionally, at-scale inference is creating more data that needs to be stored, while agentic AI represents another structural driver. WDC's improved visibility, with customer agreements extending into CY28 and CY29, along with Q4 guidance implying continued strong growth and further margin expansion, supports the view that demand remains durable. Overall, the initial weakness in the stock looked more like a sell-the-news response after a remarkable run than a negative read on the quarter. The report reinforced WDC's position as a key AI storage beneficiary, with inference, agentic AI, and longer data retention needs all pointing to sustained demand for high-capacity HDDs.