Western Digital's Q2 Earnings on Deck: Is the Stock Worth Buying Now?

Western Digital Corporation WDC is slated to release second-quarter fiscal 2026 results on Jan. 29, after the closing bell.

The Zacks Consensus Estimate for earnings is pegged at $1.94, suggesting a rise of 9.6% from the year-ago reported number. Management projects non-GAAP earnings of $1.88 (+/- 15 cents).

The consensus estimate for revenues is currently pegged at $2.95 billion, suggesting a 31% decline from the prior-year quarter’s figure. At the mid-point of its guidance, Western Digital anticipates non-GAAP revenues of $2.9 billion (+/- $100 million), up 20% year over year.

The company's earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 9.18%.

WDC’s Earnings Whispers

Our proven model predicts an earnings beat for Western Digital this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is exactly the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Western Digital presently has an Earnings ESP of +1.93% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Key Factors to Note

Western Digital’s continued focus on innovation and operational discipline positions the company well to capitalize on new growth opportunities as the AI revolution drives massive increases in data creation and storage demand. For the second quarter of fiscal 2026, management anticipates ongoing revenue growth, supported by strong data center demand and better profitability, driven by increased adoption of high-capacity drives.

The company expects non-GAAP gross margin to come in between 44% and 45%, while non-GAAP operating expenses are projected to decline sequentially to $365 million–$375 million. This guidance underscores management’s confidence in sustained demand for high-capacity storage, particularly from data-center customers. The improving margin outlook also reflects Western Digital’s ongoing focus on cost discipline, product-mix optimization and stronger pricing execution. Strong free cash flow and dividend hikes signal a shareholder-friendly strategy.

A major structural shift for Western Digital has been the spin-off of its flash business (SanDisk), completed in early 2025. The goal of this strategic split was to unlock more focused growth opportunities for each segment and simplify investors’ ability to value each business independently. It is making solid progress on HAMR, with qualification set to begin with one hyperscale customer in the first half of 2026 and expand to up to three customers by year-end. Meanwhile, next-generation ePMR drives are expected to complete qualification by early 2026, supporting a smooth and cost-efficient transition to HAMR.

During the quarter, Western Digital partnered with Qolab to develop advanced nanofabrication technologies to improve qubit performance, durability and scalability, enabling practical quantum systems capable of supporting real-world applications. In October 2025, WDC unveiled its expanded System Integration and Test (“SIT”) Lab, a 25,600-square-foot facility built to speed up product qualification and improve customer collaboration. This investment underscores its “customer-first priorities,” given the increasing demand for its products. 

However, high debt burden, stiff rivalry with Seagate, Hitachi, Samsung and Intel in the storage market and SSD pureplays, such as Micron, and extended production lead times pose concerns. Global supply chain issues and inventory management can adversely impact cost structures and delivery timelines for new technologies.

WDC Stock vs. Industry

WDC’s shares have rallied 249.1% in the past six months, outperforming the Zacks Computer-Storage Devices industry’s rise of 97.5%. The stock has also outpaced the Zacks Computer & Technology sector and the S&P 500’s growth of 15.5% and 11.4%, respectively.

The company has outperformed its competitor in the storage space, like NetApp, Inc. NTAP, and its fierce rival in the HDD business, Seagate Technology Holdings plc STX. STX has gained 138.1% while NTAP has plunged 7.6%, in the same time frame. WDC has, however, underperformed the separated Flash business from its own, Sandisk Corporation SNDK, which has soared 1023.9%.

Key Valuation Metric of WDC

Going by the price/earnings ratio, the company’s shares currently trade at 25.59 forward earnings compared with 19.01 for the industry.

NTAP, STX and SNDK are trading at multiples of 14.41X, 28.82X and 24.75X, respectively.

Is WDC a Smart Bet?

One of the biggest catalysts for Western Digital’s revival has been the explosion of AI-driven data growth. Major cloud customers have already booked large storage contracts extending well into 2026 and beyond, indicating sustained demand. Continued strength in data center demand, particularly for nearline high-capacity drives, is likely to be a strong tailwind for the earnings report. After a remarkable rally, expectations are lofty, and investors should look for clarity on growth sustainability, margin strength and guidance that supports continued optimism.

Investors should consider buying WDC stock now, as strong AI-driven demand and related industry tailwinds are fueling growth.

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

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