What’s Driving Western Digital Stock’s 10% Surge?

Western Digital’s (NASDAQ: WDC) recent Q2 2025 performance was a resounding success, driven by record-breaking nearline shipments and robust adoption of UltraSMR (shingled magnetic recording) technology. The company’s stock has surged 10% since the start of the year (as of Feb. 14), outpacing the S&P 500’s 4% gain. This impressive growth is largely attributed to the AI boom, which is driving demand for memory and storage, and Western Digital is poised to benefit from its AI-targeted storage solutions. In comparison, its peer – Seagate stock (NASDAQ: STX) – has seen a 16% rise over this period.

Image by K. Mishina from Pixabay

The company’s Q2 2025 (ended December 27) results were impressive, with net sales soaring 41% year-over-year (y-o-y) to $4.3 billion, primarily due to higher HDD, SDD, and Flash shipments. Cloud represented 55% of total revenue at $2.3 billion and grew more than double y-o-y, driven by an increase in nearline HDD shipments. Client revenue was up 4% y-o-y due to higher average selling prices (ASPs) as bit shipments declined. However, Consumer revenue fell 8% y-o-y in Q2, due to lower shipments in Flash and HDD and pricing in Flash. Gross margins also saw a significant boost, jumping to 35.4% from 16.2% in the prior year period. In addition, the company’s diluted earnings per share came in at $1.77 for Q2 2025 compared to a loss of 93 cents in Q2 2024. Its adjusted EPS was $1.77 vs ($0.75) in Q2 2024.

The increase in WDC stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 18% in 2021, -52% in 2022, 66% in 2023, and 14% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

We have revised Western Digital’s Valuation to $76 per share, based on a $5.82 expected EPS and a 13.1x P/E multiple for the fiscal year 2025. That said, the company’s valuation is almost 13% higher than the current market price (as of Feb. 14). Also, check out our analysis of Western Digital’s Revenue  for more details on the company’s key revenue streams. We believe that the positives around AI demand and the company’s storage solutions are not fully priced in for Western Digital. Notably, the average analyst price estimate of $84 for WDC also reflects a nearly 25% upside, implying that the stock has more room for growth.

Western Digital (WDC) is poised to complete the separation of its Flash and HDD businesses in fiscal Q3 2025, with the milestone expected to be reached on February 21, 2025. Looking ahead to Q3, the company’s management has guided $3.75 billion to $3.95 billion in revenue, with anticipated gross margins ranging from 31.5% to 33.5%. However, operating expenses are expected to rise in the range of $700 million to $720 million due to one-time separation costs.

In terms of segment performance, the Flash business is anticipated to experience a mid-teens percentage revenue decline in Q3, driven by lower ASPs, increased costs per bit, and underutilization charges totaling $20 million to $30 million. Bit shipments are forecast to decrease by a mid-single-digit percentage. Conversely, the HDD segment is expected to witness a mid-to-high single-digit percentage revenue decline, albeit with a gross margin improvement of approximately 50 basis points as average prices per unit trend upward.

While WDC stock looks like it may see higher levels, it is helpful to see how Western Digital’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 2/13/2025
[2] Cumulative total returns since the end of 2016

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