VALUATION HIGHLIGHTS

1. Cloud constitutes 95% of the Trefis price estimate for Western Digital's stock.

WHAT HAS CHANGED?

1. Latest Earnings - Q3 2026

The data storage solutions company posted revenue of $3.34 billion, beating market expectations of $3.25 billion and representing a significant 45% year-over-year increase. In terms of profitability, Western Digital achieved a non-GAAP adjusted earnings per share (EPS) of $2.72, comfortably outpacing the consensus estimate of $2.36 and marking a 100% surge from the adjusted EPS of $1.36 reported in the same quarter last year. Operating income also reached $1.3 billion, which is a 116% jump y-o-y, while the adjusted gross margin expanded by 1,040 basis points to reach 50.5%, surpassing the 50% milestone for the first time in company history. This exceptional financial performance across its cloud, consumer, and client segments allowed the company to generate $978 million in free cash flow and boost its quarterly cash dividend by 20% to $0.15 per share.

Note: Western Digital's FY'25 ended on June 27, 2025. Q3'26 refers to the quarter that ended on April 3, 2026.

2. Outlook

Fueled by persistent AI storage demand, the company projects Q4 revenue of $3.55 billion to $3.75 billion, with a midpoint of $3.65 billion that marks a 40% year-over-year increase and surpasses the $3.46 billion consensus. Western Digital also expects a non-GAAP gross margin of 51.0% to 52.0%, well ahead of the 47.5% market expectation. Furthermore, projected non-GAAP earnings per share of $3.10 to $3.40 bring the midpoint to $3.25, easily clearing the $2.75 expected by analysts. Management attributes this momentum to the firm's long-term customer commitments and a strict focus on high-margin, high-capacity enterprise drives over physical factory expansion.

3. Western Digital completes SanDisk spin-off
   • The move allows Western Digital to focus solely on hard disk drives(HDD) while Sandisk will operate independently as a pure-play flash storage company. SanDisk Corporation officially began trading as an independent public company on February 24th, 2025, following its separation from Western Digital.
   • This separation of Flash business resulted in the transfer of $1.366 billion in cash to Sandisk, allowing the company to focus on its core HDD business while optimizing its capital structure.
   • Western Digital has reaffirmed its strategic vision following its separation, with a focus on driving growth through cloud storage and HDD innovation. To support this goal, Western Digital is advancing its energy-assisted magnetic recording (EAMR)and heat-assisted magnetic recording (HAMR) technologies, which will help improve the total cost of ownership (TCO) for its enterprise customers. Western Digital's strategic shift is well-timed to capitalize on the growing demand for AI-driven storage.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Western Digital's value that present opportunities for upside or downside to the current Trefis price estimate for Western Digital:

• Client Revenue: Client revenue has declined from $691 million in FY 2023 to $556 million in FY 2025, primarily driven by a decrease in units sold, reflecting lower demand in the market. We expect it to reach around $600 million by the end of our forecast period.
  It’s a mature, more commoditized segment compared to the high-growth cloud side of their business. Western Digital’s client revenue is likely to grow only moderately, as the segment faces structural headwinds. Some support could come from product refreshes, tighter integration with PC makers, and a cyclical lift in demand if the broader PC market rebounds. Hybrid storage adoption and incremental gains in emerging markets may also provide a boost, while cost efficiencies can help sustain competitiveness. Advances like HAMR and higher-density drives could improve the offering, though these innovations are more critical to cloud markets than to client devices.


• Cloud Revenue: We estimate that the cloud revenue for Western will surge from its current level of $8.3 billion in FY 2025 to $12 billion by the end of our forecast period. This would largely mirror the trend in the enterprise storage market globally. If cloud/AI/data growth continues unabated, WDC could take share or grow via new, higher-capacity drives, denser storage, and longer contracts. However, there would be a potential downside to the current price estimate if the company is unable to gain market share in the rising AI demand. If Western Digital's cloud revenues were to rise to around $10 billion by the end of our forecast period, there would be a downside of about 5% to the current price estimate.

For additional details, select a driver above or select a division from the interactive Trefis split for Western Digital at the top of the page.

BUSINESS SUMMARY

Western Digital Corporation is leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drive (“HDD”) technology. HDDs are critical components in the worldwide data infrastructure market, powering the digital economy. HDDs provide reliable, cost-effective, high-capacity storage needs for a wide range of applications, ranging from cloud data centers, enterprise storage systems, edge computing, and video surveillance to client and consumer devices.

SOURCES OF VALUE

Cloud Computing Drives Data Center Sales

Post-SanDisk, WD’s traditional HDD business — particularly the cloud — represents the bulk of revenue (over 80% in recent quarters). Cloud storage contracts tend to be longer-term and high-volume, giving WDC more pricing power and predictable revenue streams. Cloud revenue is underpinned by secular trends: AI, big data, cloud adoption, video streaming, IoT, and enterprise digital transformation. These trends are far more durable than the cyclical PC or consumer HDD markets. Growth is supported by expanding capacity per customer, not just more units, so WD can increase revenue without proportionally increasing manufacturing costs.

WDC’s investments in HAMR, UltraSMR, high-density HDDs, and SSD integration directly benefit the cloud segment, making it harder for competitors to replicate WDC's cost-per-terabyte advantage at hyperscaler scale.

KEY TRENDS

The high growth of digital content is driving the need for higher storage capacity to store, aggregate, host, distribute, manage, back up, and use digital content. The need to access rich data and content is being driven by a highly mobile and increasingly connected user base.

AI Boom

The AI boom is increasingly important for Western Digital because it drives explosive demand for data storage, particularly high-capacity HDDs and enterprise SSDs. AI workloads generate massive datasets that need cost-effective, reliable storage, which favors WD’s nearline HDDs and high-density drives for cloud and hyperscaler customers. Additionally, AI applications accelerate edge computing and distributed data storage, creating more opportunities for WD’s hybrid storage solutions. This trend strengthens WD’s cloud and enterprise segments—the most profitable parts of the business—while reinforcing long-term contracts, driving higher volumes, and potentially increasing pricing power. In short, AI adoption amplifies both the scale and value of WD’s storage offerings.

Growth In Cloud Computing And Remote Storage Services

Growth in remote storage locations, such as edge data centers and regional facilities, supports Western Digital’s HDD business by increasing overall storage demand and expanding the customer base beyond hyperscalers. These sites often require high-capacity drives for cost-effective long-term storage, while hybrid architectures combine solid-state drives (SSDs) for speed and HDDs for volume. As remote locations scale and refresh hardware, WD benefits from recurring HDD sales, making this trend a steady source of incremental revenue and helping sustain demand in a market increasingly focused on flash storage.