Western Digital Stock Is Down Sharply: Why the Bull Case Still Looks Strong

Western Digital (WDC) stock has pulled back sharply after a strong rally, falling 45% from its recent high. The correction reflects profit-taking and investor concerns about whether elevated storage pricing and demand can remain sustainable.

While WDC stock has lost substantial value, its fundamentals remain strong, and the decline has improved the risk-reward profile. Further, Western Digital entered fiscal 2027 with strong operating momentum, supported by solid demand for its hard disk drives (HDDs) and the expansion of artificial intelligence (AI) infrastructure.

Western Digital’s Earnings Momentum to Sustain  

Western Digital delivered solid growth in fiscal 2026, and the company appears well positioned to extend that momentum into fiscal 2027 and beyond. Supporting its investment case are robust demand for HDDs, improving margins, favorable pricing, and a richer product mix.

Fiscal 2026 numbers highlight the strength of the underlying business. Revenue jumped 36% to $12.9 billion. At the same time, gross margin expanded 970 basis points to 49.1%, and operating margin increased even more sharply, rising 1,290 basis points to 37.3%. WDC’s strong revenue growth and significant margin expansion resulted in solid earnings and free cash flow. Notably, WDC’s EPS more than doubled to $10.22, while free cash flow reached $3.5 billion.

Looking ahead, the rapid buildout of AI infrastructure is creating a structural tailwind for Western Digital. The demand opportunity is also broadening. Agentic AI systems are likely to generate significant storage demand as they process and retain larger volumes of information. At the same time, physical AI applications, including autonomous vehicles, robotics, industrial automation, and humanoid systems, could create another long-term source of demand.

This gives Western Digital exposure to what could become a multi-year increase in storage intensity across the technology ecosystem.

Western Digital is also expanding its portfolio of higher-capacity storage products, which will improve the economics of data center deployments, potentially supporting demand while providing Western Digital with opportunities to improve its product mix and margins.

Alongside demand, favorable pricing conditions across Western Digital’s cloud, consumer, and client markets could provide another meaningful boost to revenue and profitability.

The company’s first-quarter fiscal 2027 outlook shows ongoing strength in its business. Management expects revenue of approximately $4.1 billion at the midpoint, representing roughly 45% year-over-year (YoY) growth. More importantly, gross margin is expected to reach 55% to 56%, well above the 49.1% reported for fiscal 2026 as a whole.

Management also expects quarterly EPS of approximately $4, compared with $1.78 in the year-ago period, representing a substantial step-up in profitability.

Further, Wall Street’s estimates strengthen the view that Western Digital’s earnings cycle still has considerable room to run. Analysts expect fiscal 2027 EPS of approximately $19.65, representing about 100.5% growth despite the difficult comparison with fiscal 2026.

The projected growth does not stop there. Analysts currently expect EPS to increase another 73.2% to $34.03 in fiscal 2028.

The estimates suggest that Western Digital’s earnings momentum is likely to sustain beyond fiscal 2027, supporting the upside in WDC stock.

WDC Stock's Valuation Looks Reasonable

Thanks to the correction in WDC stock, its valuation looks reasonable compared to its growth potential. Western Digital stock currently trades at 23.38 times forward earnings, and considering its solid EPS growth trajectory, the valuation looks compelling.

Wall Street maintains a positive outlook on WDC stock, with most analysts recommending a “Strong Buy” consensus rating. Moreover, analysts’ average price target of $665.48 indicates an upside potential of 48% from its Tuesday closing price of $450.75.

The Key Takeaway

Western Digital’s sharp pullback has improved the stock's risk-reward profile, while robust demand, expanding margins, and strong earnings growth support the bull case. Its current valuation also remains reasonable, and analysts see substantial upside. Thus, the recent correction provides an attractive entry point for investors.