Western Digital Corp. (WDC) Solid guidance falls short of high expectations given technology transition

Equity Research 5 August 2026 | 10:34PM EDT

Western Digital Corp. (WDC): Solid guidance falls short of high expectations given technology transition

Key stock takeaways: We expect the stock to trade lower despite a strong quarter, James Schneider, Ph.D. | with margin/EPS guidance roughly in line the Street against a backdrop of high Goldman Sachs & Co. LLC investor expectations. We believe investor expectations were very elevated given Khalil Fenina growing confidence in continued pricing and margin momentum in HDDs, recent | price increases, and in light of Seagate’s strong report. We believe the market saw Goldman Sachs & Co. LLC

guidance as somewhat disappointing given the company reported exabyte growth of Anmol Makkar | 22% in the quarter, below its stated long-term goal of over 25%, which management Goldman Sachs & Co. LLC attributed to tech transition-driven lumpiness and mix. However, we expect the company is likely to execute well through this transition period as it ramps its 40TB Luya You | ePMR products and qualifies HAMR. We see upside to the stock at current levels, but Goldman Sachs & Co. LLC

prefer Buy-rated Seagate given its stronger pricing momentum as it has navigated through the bulk of its HAMR technology transition.

Quarterly revenue in line with the Street, with margins above: Western Digital reported revenue of $3.75 bn, in line with GS at $3.76 bn and the Street at $3.71 bn (Visible Alpha Consensus Data), while gross margin of 54.4% was above GS at 52.4% and the Street at 51.9%. Non-GAAP EPS of $3.56 was above GS at $3.43 and the Street at $3.35. Cloud revenue of $3.35 bn was below GS at $3.38 bn but slightly above the Street at $3.26 bn, Client revenue of $225 mn was far above GS at $170 mn and Street at $179 mn, and Consumer revenue of $187 mn was well below GS at $214 mn and the Street at $203 mn.

n Capacity growth and technology ramp: The company reported exabyte growth of 22% y/y in the quarter, although management indicated that it remains confident in its long-term 25% exabyte growth target. The company began shipping its 40TB ePMR products in the quarter, and expects a strong ramp over the coming quarters (reaching ~50% crossover by FY 3Q27) - with a final 50TB iteration of its ePMR platform available in CY2H27. On HAMR, management noted that the qualification process with the initial four customers ongoing - but initial feedback has been positive. While these tech transitions may result in near-term exabyte growth lumpiness, we remain constructive on the company’s execution on its aerial density roadmap. n Pricing and margins: Western Digital reported a blended high-teens YoY increase in price per terabyte in the quarter, and noted that this was partially driven by higher pricing opportunities in non-nearline. Management noted that shipments of higher-capacity drives would continue to support pricing going

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Goldman Sachs Western Digital Corp. (WDC)

forward, and that it remains on track for ~50% of nearline bit shipments in FY 3Q27 to be 40TB ePMR. The company added that LTA pricing would also be adjusted as contracts are renewed, though it did not specify the number of LTAs it currently has on a year-by-year basis, and that existing contracts still offered some degree of pricing flexibility. Cost per terabyte declined 8% y/y in the quarter, resulting in a gross margin of 54.4% (~250bps above the Street). n Supply/demand environment: Management discussed extended revenue visibility, and noted that the company continues to ship below demand - a trend which we expect to continue for the foreseeable future given measured supply additions by the industry and a robust demand…