AI Demand Fuels Bullish Western Digital Forecasts

A high-conviction call from one of Wall Street’s largest banks is drawing fresh attention to the critical role of data storage in the artificial intelligence (AI) revolution. On Oct. 21, Bank of America (NYSE: BAC) reiterated its Buy rating on Western Digital (NASDAQ: WDC) and raised its price target to $145 per share. The bank’s reasoning was direct: it expects the data storage leader to capture market share and achieve record-breaking product shipments.

This move by a major financial institution is more than just a routine update; it validates Western Digital’s strategy and its position at the center of the AI infrastructure buildout. The optimistic forecast is not speculative but is built upon a foundation of accelerating demand, proven operational performance, and a growing consensus that the company is primed for sustained growth.

The AI Catalyst: From Data Centers to Dollar Signs

The engine behind Western Digital’s momentum is the insatiable demand for data generated by AI. While advanced semiconductor chips often dominate the conversation, the large language models powering today's technology require immense and ever-growing data reservoirs. This is where Western Digital’s core business shines. For the world’s largest cloud providers, who accounted for 90% of the company's revenue last quarter, storing this data economically is a top priority.

While flash-based Solid State Drives (SSDs) are essential for fast data access, high-capacity hard disk drives (HDDs) remain the foundational solution for mass storage. Their unmatched Total Cost of Ownership (TCO), or cost-per-terabyte, makes the AI business model viable at scale, especially for archiving training data and storing the vast outputs of generative AI.

Market forecasts support this narrative, projecting exabyte shipments for nearline HDDs to grow between 18% and 25% annually.

Western Digital's performance clearly shows this direct link between AI growth and storage demand. For its full fiscal year 2025, the company reported revenue of $9.52 billion, a remarkable 51% increase from the prior year. This growth directly reflects the company’s ability to meet the market’s needs.

Operational execution has been a key factor. The company has successfully ramped up production of its latest generation of high-capacity drives, the 26-terabyte CMR and 32-terabyte UltraSMR models, with shipments more than doubling in the fourth quarter to over 1.7 million units. This demonstrates a crucial ability to deliver advanced, reliable technology at scale. 

Perhaps the most compelling evidence supporting the record shipments thesis presented by analysts is the company's unprecedented visibility into demand. Management recently confirmed that Western Digital has secured firm Purchase Orders (PO) or Long-Term Agreements (LTA) with its top five hyperscale cloud customers, locking in demand for the entire 2026 fiscal year and beyond for some. 

This dramatically reduces historical market volatility and provides a clear, predictable path to future growth.

Cash Flow, Buybacks, and Confidence

A compelling growth story requires a strong financial foundation, and Western Digital has demonstrated significant discipline in managing its recent success. The company’s operational performance is generating substantial cash, allowing it to strengthen its balance sheet while simultaneously returning capital to shareholders.

In its fourth fiscal quarter, Western Digital produced an impressive $675 million in free cash flow, a key indicator of its ability to fund future growth without taking on new debt. Management has put this cash to practical use, reducing its debt by $2.6 billion during the quarter. This decisive move achieved the company's stated net leverage target of 1x to 1.5x EBITDA ahead of schedule, showcasing a commitment to a healthy balance sheet.

At the same time, Western Digital’s board signaled its confidence in the long-term outlook by initiating a quarterly dividend of 10 cents per share. This distribution appears highly sustainable with a low dividend payout ratio of under 8% of earnings. This was coupled with the authorization of a new $2 billion share repurchase program.

These actions convey to investors that leadership believes the current cash flow generation is not a temporary spike but a durable feature of its business model.

A Growing Bullish Consensus

While Bank of America’s price target increase was significant, it is not an isolated opinion. A powerful consensus is forming across Wall Street, with numerous analysts upgrading their outlooks on Western Digital. 

This broad agreement provides strong third-party validation for the company’s positive trajectory, with common themes citing strong pricing discipline in the HDD market and the unprecedented visibility offered by the new long-term customer agreements.

The pattern of upward revisions highlights a shared belief in the AI-driven demand cycle.

Among the recent notable price target increases are:

• Mizuho: Target raised to $160
• Loop Capital: Target raised to $150
• Wells Fargo & Company: Target raised to $150
• Wedbush: Target raised to $135

This chorus of bullish sentiment suggests that the market increasingly recognizes the durability of Western Digital’s growth prospects.

A Key Catalyst on the Horizon

The bullish case for Western Digital is not built on speculation. Still, it is firmly grounded in strong execution, a robust financial position, and apparent, locked-in demand from the world’s most influential technology companies. The stock's year-to-date performance reflects the market's growing awareness of these fundamental strengths.

Investors will be closely watching the company’s next major report. The release of its first-quarter fiscal year 2026 results on October 30 will serve as the next critical data point, offering further insight into whether the company can continue to execute on this powerful growth narrative.

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

The article "AI Demand Fuels Bullish Western Digital Forecasts" first appeared on MarketBeat.