From Data Dust to Digital Gold, This Digital Stock is on the Move

Western Digital (NASDAQ: WDC) just delivered a knockout Q4 and may be on the verge of rewriting its narrative. After several tough years defined by cyclical headwinds and inventory gluts, the company has flipped the script.

Quarterly earnings of $1.66 per share crushed estimates by 12%, revenue jumped 30% year over year to $2.61 billion, and the company returned to full-year profitability.

More importantly, the company is showing clear signs of sustainable momentum. The AI-driven data boom is breathing new life into Western Digital’s core business.

Its Nearline hard drives, a crucial infrastructure layer for hyperscalers and cloud providers, saw volumes and average selling prices surge. The company shipped 190 exabytes of storage in the quarter, with sales of its 26TB and 32TB drives more than doubling.

WDC’s rebound is no accident. It’s the result of disciplined cost controls, technology upgrades, and a firm grip on customer relationships.

Management now expects $2.7 billion in Q1 FY26 revenue and earnings of $1.54 per share, again ahead of consensus.

Add in a $2 billion buyback authorization, a 0.51% dividend, and the market’s growing need for scalable AI infrastructure, and this could be one of the more underappreciated plays in enterprise tech.

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Cloud Momentum Is the Growth Engine

WDC’s exposure to cloud customers is driving the majority of its rebound. Over 90% of revenue now comes from the cloud segment, which grew 36% year over year. Clients are demanding denser, cheaper, and more energy-efficient storage, and WDC is delivering.

This is especially critical given the company’s success in ramping up production of high-capacity nearline drives.

These include its 26TB CMR and 32TB UltraSMR lines, which are quickly becoming foundational components in AI-centric data center architecture. Total shipments of these drives topped 1.7 million in the June quarter, at a record pace.

In parallel, Western Digital has secured long-term supply agreements with five of the top cloud service providers, some extending through mid-2027.

That gives the company a stable revenue base while newer technologies like UltraSMR begin to scale.

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Operating Leverage Is Kicking In

Western Digital has retooled its cost base. Non-GAAP gross margin expanded to 41.3%, up 610 basis points from a year ago, driven by a shift to higher-margin products and efficient supply chain execution.

Operating expenses dropped 16% year over year, and free cash flow soared 139% to $675 million.

This margin expansion is crucial. It means WDC can grow profitably without needing to chase lower-value volume. Capital expenditures remain disciplined, and debt has declined significantly, from $7.3 billion in March to $4.7 billion as of June.

Cash from operations nearly doubled, and the company ended the quarter with $2.1 billion in cash.

Management’s decision to reinstate shareholder returns also signals confidence.

A quarterly dividend is back in place, and the $2 billion share buyback plan reinforces the view that WDC is now generating excess cash.

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Product Innovation Keeps the Moat Intact

The company’s ongoing product roadmap is another reason for optimism. WDC is investing heavily in its next-generation storage technology.

UltraSMR, its newest innovation, is on track to represent over 50% of total bits shipped by the end of 2025.

Meanwhile, its HAMR (heat-assisted magnetic recording) technology is still on course for a 2027 launch. If successful, HAMR could materially raise storage density and lower cost per terabyte, an important metric for cloud buyers managing AI-scale data centers.

WDC’s ability to innovate while hitting financial targets positions it well versus competitors. Seagate (STX), its closest rival, has struggled to match WDC’s margin improvement and volume ramp in recent quarters.

While both firms are benefiting from AI tailwinds, Western Digital appears better aligned with large-scale cloud deployments and hyperscaler roadmaps.