3 Reasons to Avoid WDC and 1 Stock to Buy Instead

Western Digital has been on fire lately. In the past six months alone, the company’s stock price has rocketed 170%, reaching $139.89 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Western Digital, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Is Western Digital Not Exciting?

Despite the momentum, we're swiping left on Western Digital for now. Here are three reasons you should be careful with WDC and a stock we'd rather own.

1. Revenue Spiraling Downwards

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Western Digital’s demand was weak and its revenue declined by 9.4% per year. This wasn’t a great result and is a sign of lacking business quality. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

Western Digital’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 14.9% gross margin over the last two years. That means Western Digital paid its suppliers a lot of money ($85.10 for every $100 in revenue) to run its business.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Western Digital historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.6%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Final Judgment

Western Digital isn’t a terrible business, but it isn’t one of our picks. After the recent rally, the stock trades at 17.5× forward P/E (or $139.89 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.

Stocks We Would Buy Instead of Western Digital

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.

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