WDC Surges 129% in 6 Months: How Should Investors Play the Stock?

Western Digital Corporation’s (WDC) shares have rallied 128.8% in the past six months, outperforming the Zacks Computer-Storage Devices industry’s rise of 50.1%. The stock has also outpaced the Zacks Computer & Technology sector and the S&P 500’s growth of 30.9% and 18.2%, respectively. The data storage giant, best known for its hard drives, is regaining investor confidence as demand for storage and AI-powered data systems rises.

The company has outperformed its competitors in the storage space, like NetApp, Inc. (NTAP) and the newly separated entity from WDC's own, Sandisk Corporation (SNDK). SNDK and NTAP have gained 61.9% and 33.1% respectively, during the same time frame. However, WDC has underperformed its stiff rival in the HDD storage space, Seagate Technology Holdings plc (STX). STX has soared 133.2% in the past six months.

Closing at $102.39 as of last day’s trading session (Sept. 15, 2025), WDC stock is currently trading near its 52-week high of $103.78. Following a strong rally, investors may wonder if WDC still holds meaningful upside or if expectations have outpaced fundamentals. Let’s break down the pros and cons to assess the road ahead.

Drivers Behind WDC’s Rally

A key growth driver for WDC has been the surge in AI workloads and cloud adoption. The rise of Agentic AI across industries is increasing demand for storing unstructured data, and Western Digital is already benefiting from using Agentic AI to accelerate its product development. Although still in the early stages, these trends are rapidly spreading worldwide. As AI fuels data growth, the need for scalable storage rises.

HDDs remain the most cost-effective and reliable option, forming the backbone of global data infrastructure and providing strong value for large-scale storage in an AI-driven future. Cloud end market comprises the lion’s share of its revenues, fueled by rising demand for high-capacity nearline HDDs. The company is managing capacity carefully while meeting long-term needs with dependable, high-capacity solutions. Shipments of its latest PMR drives—offering up to 26 terabytes in CMR and 32 terabytes in UltraSMR—more than doubled quarter over quarter in June, surpassing 1.7 million units. This represents one of the fastest qualification and ramp-up cycles in Western Digital’s history.

WDC’s ePMR and UltraSMR technologies provide reliability, scalability and a strong Total Cost of Ownership (TCO), strengthening its position in the data center market. It is extending ePMR’s proven track record into next-generation HAMR drives, with encouraging feedback from hyperscale customer tests. It remains ahead of internal milestones, making steady progress in aero density, reliability and yield. It expects next-gen ePMR drives to complete qualification in the first half of 2026, ensuring a smooth and cost-efficient transition to HAMR, which is on track for customer qualification and ramp in early 2027.

Furthermore, the rapid growth of AI is accelerating the company’s platforms business, which delivers high-density systems that maximize drive performance and capacity. This business is gaining traction with infrastructure providers and is well-positioned to serve the increasing number of native AI companies lacking dedicated storage teams.

WDC’s Improved Financials and Guidance

In the last reported quarter, the company reported better-than-expected revenue growth, improved gross margins and cost discipline. It issued upbeat guidance, projecting continued demand momentum. Quarterly revenues grew 30% year over year to $2.61 billion, exceeding the Zacks Consensus Estimate of $2.45 billion, driven by cloud and generative AI demand. Sales rose 14% sequentially, with fiscal fourth-quarter guidance at $2.45 billion (+/- $150 million).

Non-GAAP gross margin was 41.3% up 610 basis points year over year, exceeding guidance (40-41%) on higher-capacity drive sales and tight cost control, with operating expenses falling 16% to $345 million.

Strong business momentum, particularly in cloud storage, is driving expectations for a solid fiscal first quarter. At the mid-point of its guidance, Western Digital anticipates non-GAAP revenues of $2.7 billion (+/- $100 million), up 22% year over year. Management projects non-GAAP earnings of $1.54 (+/- 15 cents). It expects non-GAAP gross margin in the range of 41-42%. Non-GAAP operating expenses are expected to be between $370 million and $380 million.

WDC’s Spin-Off & Capital Allocations Poised as Catalysts

To further enhance its Flash business and improve emphasis on its core HDD market, WDC has completed the separation of its HDD and Flash businesses into two independent, publicly traded companies, each with a specific focus on its respective market, in February 2025. With a deep understanding of memory and storage technology, the new SanDisk is well-equipped to take advantage of AI opportunities while maximizing the value of its products for both consumers and businesses.

Management remains focused on enhancing shareholder value through dividends and buybacks. Backed by strong cash flow and a solid balance sheet, the board authorized up to $2 billion in share repurchases and initiated a quarterly dividend. In the fiscal fourth quarter, the company repurchased about 2.8 million shares for $149 million.

Headwinds to Western Digital’s Expansion

Customer concentration risk, leveraged balance sheet, macro uncertainty and intense rivalry from other major storage players remain an overhang on Western Digital’s growth prospects. Seagate, like WDC, is driving growth through HAMR technology that increases areal density to support rising storage demands across hyperscale data centers, AI training and edge environments. Losing market share or failing to innovate could dent WDC’s momentum.

NTAP and WDC compete in the broader storage space. NetApp focuses on software-defined storage and cloud data management, while WDC emphasizes hardware with HDDs and SSDs. Similarly, it competes with SNDK in the broader storage market. WDC specializes in HDDs for cloud storage and innovation, while the newly independent SanDisk focuses on NAND flash solutions for consumer and enterprise applications. Both companies compete for market share by advancing distinct technologies and leveraging different strategic strengths.

One of the concerns for WDC has been its high debt load. The company currently has a debt-cap ratio of 88.7% compared with the Zacks Computer – Storage Devices industry’s ratio of 45.5%. The high debt level jeopardizes its ability to pursue accretive acquisitions and other growth endeavors. It is required to constantly generate adequate cash flows to meet debt requirements.

However, it reduced debt by $2.6 billion in the June quarter through cash utilization and a debt-for-equity exchange, strengthening its balance sheet and achieving its net leverage target of 1–1.5x. During the quarter, WDC exchanged about 21 million SanDisk shares to reduce Term Loan A by $800 million while retaining 7.5 million shares. The company also redeemed $1.8 billion of senior unsecured notes, lowering gross debt to $4.7 billion at fiscal 2025 year-end.

Macroeconomic volatility, including tariffs and rising trade tensions, remains a concern for management, with the potential to cause demand fluctuations across enterprise, distribution and retail segments. To mitigate these risks, Western Digital has established cross-functional teams to reduce disruptions and ease tariff impacts, while maintaining a disciplined approach to long-term supply chain adjustments. Despite broader uncertainty, demand from hyperscale customers remains strong amid tight supply.

Estimate Revision Trend of WDC

WDC’s estimates revisions are on an upward trajectory currently. The Zacks Consensus Estimate for WDC’s earnings for fiscal 2026 has been revised up 11.5% to $6.50 over the past 60 days, while the same for fiscal 2027 has gone down 12.3% to $7.11.

Key Valuation Metric of WDC

From a valuation standpoint, WDC appears to be trading relatively cheaper compared with the industry but trading above its mean. Going by the price/earnings ratio, the company’s shares currently trade at 15.44 forward earnings, lower than 21.39 for the industry but above the stock’s mean of 8.72.

End Note

Western Digital’s strong growth and profitability, driven by rising AI demand, rapid adoption of high-capacity drives, and solid customer relationships, bode well. The company continues to achieve higher margins, generate strong free cash flow, reduce debt, and advance capital return programs. Amid broader macro fluctuations shaped by evolving tariffs, management remains confident in revenue growth and margin expansion, supported by hyperscale customer commitments and ongoing storage innovation, with a positive outlook for fiscal 2026.

With a Zacks Rank #3 (Hold), WDC appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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