WDC Bets on Sustained AI Growth With Higher Shareholder Returns

Western Digital Corporation’s WDC expanded capital allocation plans underscore management’s increasing confidence in the AI-driven data storage cycle.

WDC’s focus on innovation and operational discipline will aid in capturing the new growth opportunities presented by AI proliferation, which is driving explosive increases in data creation and storage demand. Its storage portfolio is evolving in sync with the needs of AI-driven data growth. This strategic alignment is allowing the company to sustain revenue momentum amid a competitive landscape.

WDC reported a 27% jump in revenues to $2.8 billion for the first quarter of fiscal 2026. Non-GAAP operating income was $856 million, up 110% year over year, with margins expanding more than 1,200 bps to 30.4%. This, combined with disciplined capex of $73 million, led to $599 million of cash flow in the fiscal first quarter. Moreover, cash and cash equivalents were $2 billion as of Oct. 3, 2025.  

Driven by strong performance, WDC repurchased 6.4 million shares for $553 million and paid $39 million in dividends. Management added that since the launch of the capital return program in fourth-quarter fiscal 2025, the company has returned a total of $785 million to shareholders through buybacks and dividends.

Following a strong first-quarter fiscal 2026 performance, the company announced a 25% increase in its quarterly dividend in October 2025. Management’s actions suggest that AI-driven data growth is a long-term structural opportunity capable of supporting both top line growth and shareholder value creation.

Where Do Competitors Stand on Shareholder Returns

Seagate Technology Holdings plc STX is emphasizing shareholder returns in fiscal 2026, supported by improving operating performance and stronger cash flow visibility. STX resumed share repurchases, marking a notable shift in capital allocation.

In the first quarter of fiscal 2026, the company paid $153 million in dividends and repurchased shares worth $29 million. Following a solid September quarter, STX hiked its quarterly dividend 3% to 74 cents per share in October 2025. STX also reiterated its commitment to returning at least 75% of free cash flow to shareholders over time. Seagate's business model changes and strong product pipeline position it well for better profitability and cash flow in fiscal 2026. This positions the company well to balance growth with meaningful capital returns, thereby enhancing shareholder value in fiscal 2026 and beyond.

NetApp’s NTAP cash, cash equivalents and investments were $3 billion at the end of the last reported quarter. Net cash from operations was $127 million compared with $105 million in the previous-year quarter. Free cash flow was $78 million (free cash flow margin of 4.6%) compared with $60 million in the prior-year quarter (3.6%). A strong balance sheet helps NetApp continue its shareholder-friendly initiatives of dividend payouts.

The company returned $353 million to its shareholders as dividend payouts and share repurchases in the fiscal second quarter of 2026. NetApp returned $250 million to its shareholders through share repurchases and distributed $103 million in dividends. The company returned $1.57 billion to its shareholders as dividend payouts and share repurchases in fiscal 2025. NetApp’s ability to generate solid free cash flow is expected to help it sustain the current dividend payout (0.35) level, at least in the near term.

WDC Price Performance, Valuation and Estimates

In the past month, shares have gained 14.2% against the Zacks Computer-Storage Devices industry’s decline of 1.5%.

In terms of forward price/earnings, WDC’s shares are trading at 20.17X, up from the industry’s 18.44X.

The Zacks Consensus Estimate for WDC’s earnings for fiscal 2026 has been revised up 15.3% to $7.63 over the past 60 days.

Currently, Western Digital sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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

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