Western Digital (WDC) Stock Surges 5% on Record Q3 Performance and Strong Cloud Demand

Key Highlights

• Q3 revenue reached $3.34 billion, representing a 45% year-over-year increase and surpassing the $3.23 billion estimate.
• Earnings per share of $2.72 reflected a 97% year-over-year surge, exceeding the projected $2.36.
• Gross margin expanded to 50.5%, marking a 1,040 basis point improvement from the prior year.
• Cloud segment generated $3.0 billion, accounting for 89% of total revenue with 48% year-over-year growth.
• TD Cowen lifted its price target from $325 to $500 while reaffirming a Buy recommendation.

Shares of Western Digital (WDC) advanced 5.27% to reach $434.52 following the data storage company’s exceptional fiscal third-quarter 2026 results, which significantly exceeded Wall Street projections across all major metrics.

Western Digital Corporation, WDC

The company delivered quarterly revenue of $3.34 billion, marking a robust 45% increase from the same period last year, comfortably topping analyst predictions of $3.23 billion. Earnings per share totaled $2.72, representing a substantial 97% year-over-year leap and significantly outperforming the consensus estimate of $2.36.

Gross margin performance impressed at 50.5%, reflecting an expansion of 1,040 basis points compared to the prior year and 440 basis points sequentially. Operating income surged to $1.3 billion, climbing 106% year over year, yielding an operating margin of 38.6%.

The cloud segment emerged as the primary growth catalyst. Cloud-related revenue totaled $3.0 billion, comprising 89% of overall revenue and expanding 48% from the year-ago quarter. Company executives highlighted stronger demand for higher-capacity nearline storage solutions as the key performance driver.

The company shipped 222 exabytes in total capacity, reflecting a 34% year-over-year increase. This included 4.1 million EPMR drives representing 118 exabytes, with capacity configurations reaching up to 32 terabytes.

Average selling prices demonstrated strength, rising 7% sequentially and 9% year over year during the March quarter. Pricing per terabyte climbed 9% year over year, bolstered by long-term supply agreements with major customers.

Free cash flow generation reached $978 million, translating to a 29% free cash flow margin. During the quarter, Western Digital repurchased 2.9 million shares totaling $752 million and distributed $43 million in dividends.

The company also announced a 20% increase to its quarterly dividend, raising it to $0.15 per share, with payment scheduled for June 17, 2026 to shareholders of record as of June 5.

SanDisk Divestiture Eliminates Net Debt

Western Digital monetized 5.8 million SanDisk shares, enabling a $3.1 billion debt reduction. The company concluded the quarter with a net cash position of $450 million while retaining 1.7 million SanDisk shares.

Since initiating its capital allocation program in fiscal 2025, the company has returned $2.2 billion to shareholders through buybacks and dividends.

On the technology front, the company’s 44-terabyte HAMR and 40-terabyte EPMR drives are currently undergoing customer qualification processes. HAMR technology is being evaluated by four customers, while the 40-terabyte EPMR solution is in testing with three major accounts. The company’s product development roadmap extends well beyond 100 terabytes per drive.

UltraSMR technology has gained traction with the three largest cloud customers, with two of them fulfilling nearly all their exabyte requirements through this platform. Management anticipates UltraSMR will represent approximately 60% of total exabytes shipped by the end of fiscal 2027.

Forward Outlook and Street Response

For the fourth quarter, Western Digital projected revenue of $3.65 billion, with a variance of $100 million either direction, implying approximately 40% year-over-year growth at the midpoint. The company anticipates gross margin in the 51% to 52% range, with non-GAAP earnings per share of $3.25, plus or minus $0.15.

The Q4 outlook exceeded Street consensus by roughly 18%, although shares experienced some after-hours pressure. TD Cowen attributed the modest pullback to slightly tempered gross margin expansion expectations — 60–65% for the June quarter compared to 90% achieved in March — particularly relative to Seagate’s implied 80% trajectory.

TD Cowen elevated its price objective to $500 from $325 while maintaining its Buy rating on the shares. The firm’s analysis projects calendar year 2027 earnings of $21 per share based on projected annual ASP growth of 8%.

Insider transaction data revealed $28.7 million in stock sales by company insiders during the reporting period, with no documented purchases.

The post Western Digital (WDC) Stock Surges 5% on Record Q3 Performance and Strong Cloud Demand appeared first on Blockonomi.