Last Update 19 Dec 25

Fair value Increased 3.04%

WDC: AI Storage Demand Will Support Higher Margins Amid Cycle Uncertainty

Analysts have nudged our Western Digital fair value estimate higher to about $187 per share from roughly $181, reflecting stronger than expected enterprise HDD and NAND demand, improving pricing and margin dynamics, and higher forward valuation multiples following a series of Street price target hikes into the $135 to $200 range.

Analyst Commentary

Bullish analysts have broadly raised price targets into the mid 100s to $200 range, citing a combination of better than expected earnings execution, improving supply demand conditions in both HDD and NAND, and rising confidence in Western Digital's ability to sustain higher margins through the current cycle.

Bullish Takeaways

Bullish analysts highlight that recent quarters delivered upside on revenue, gross margin, and EPS versus already elevated expectations, reinforcing confidence in management's execution and cost discipline.
Several upward estimate revisions are tied to stronger enterprise and nearline HDD shipments, more favorable pricing, and a view that structurally higher utilization and AI driven cloud demand can support a longer, stronger upcycle.
Many price target hikes explicitly assume higher long term gross margin and operating margin profiles, supported by improved mix, leadership in hybrid SMR capacities, and accelerating economic accretion in HDD.
AI, cloud infrastructure, and data rich workloads are seen as powerful multi year tailwinds for both HDD and NAND, with some analysts arguing that the market remains supply constrained, which could underpin pricing and multiples beyond the near term.

Bearish Takeaways

More cautious analysts, even while raising targets, are maintaining neutral stances and flag that part of the recent share price strength reflects multiple expansion that could reverse if pricing or demand normalizes faster than expected.
There is concern that some forward estimates may still be conservative, implying that any disappointment versus rising Street expectations could pressure the stock despite underlying fundamentals remaining healthy.
Visibility into longer dated contractual arrangements and next generation HDD technologies is still limited, and any delays in scaling new platforms or securing favorable renewal terms could temper the current margin and growth narrative.
Macro volatility and cyclicality in memory and storage remain overhangs, with cautious voices emphasizing that AI and cloud demand could prove choppier than currently embedded in premium valuation frameworks.

What's in the News

Unveiled next generation AI and HPC storage solutions and partnerships at Supercomputing 2025, including 32TB UltraSMR HDDs and expanded NVMe oF architectures to reduce bottlenecks and improve GPU utilization (Key Developments).
Expanded its Open Composable Compatibility Lab ecosystem with new partners such as ASUS, Solidigm, Leil Storage, Open E, and Swiss Vault to deliver pre validated, vendor neutral, disaggregated storage solutions (Key Developments).
Opened an expanded 25,600 square foot System Integration and Test Lab in Rochester to accelerate qualification of high capacity HDDs and support over 2,000 customer systems across AI and cloud workloads (Key Developments).
Completed repurchase of 9.2 million shares, or 2.66% of shares outstanding, for $702.41 million under the buyback announced in May 2025 (Key Developments).
Raised its quarterly cash dividend by 25% to $0.125 per share and issued fiscal second quarter 2026 revenue guidance centered around $2.9 billion (Key Developments).

Valuation Changes

The fair value estimate has risen slightly to approximately $187 per share from about $181, reflecting modestly stronger long term fundamentals.
The discount rate has edged down marginally to roughly 8.42% from about 8.43%, indicating a slightly lower perceived risk profile in the updated model.
Revenue growth has increased slightly to around 13.60% from about 13.36%, incorporating a more constructive outlook for top line expansion.
The net profit margin has eased slightly to roughly 24.73% from about 24.89%, suggesting a modestly more conservative view on long term profitability.
The future P/E has risen slightly to about 21.0x from roughly 20.4x, implying a modest increase in the valuation multiple applied to forward earnings.

Deep partnerships with hyperscalers and innovative drive technologies position the company to capture strong, sustained market and margin expansion from AI-driven storage demand.
Improved financial health and platform solutions enable ongoing investment, expanded market reach, and greater shareholder returns.
Dependence on few cloud customers, market shifts, trade uncertainty, and emerging storage technologies threaten long-term growth, margin stability, and revenue diversification.

Catalysts

About Western Digital

Develops, manufactures, and sells data storage devices and solutions based on hard disk drive (HDD) technology in the Americas, Asia, Europe, the Middle East, and Africa.What are the underlying business or industry changes driving this perspective?

The explosive increase in unstructured data generated by AI applications, Agentic AI, and cloud-based services across industries is driving unprecedented storage needs. Western Digital's deep integration with leading hyperscalers (e.g., all top 5 with firm POs/LTAs covering the next 12–18 months) positions the company to benefit from secular demand, directly fueling higher long-term revenue growth.
Higher adoption of Western Digital's larger capacity, high-value ePMR and UltraSMR drives-with rapid qualification and ramp cycles-demonstrates customer trust and enables both pricing power and favorable product mix, leading to structurally higher gross margins and improved net margins over time.
The company's next-generation roadmap (final ePMR and upcoming HAMR drives) allows for sustained aerial density improvements and cost efficiencies, supporting continued profitability and margin expansion as data requirements grow.
Platform solutions, targeting a new class of native AI/neo-cloud companies lacking in-house storage teams, open up incremental markets and new revenue streams, broadening Western Digital's addressable market and supporting topline growth.
Ongoing balance sheet improvements, significant debt reduction, and robust free cash flow generation increase financial flexibility; this supports both continued R&D investment to capitalize on long-term demand trends and shareholder returns (dividends, buybacks), ultimately enhancing EPS and return on equity.

Western Digital Earnings and Revenue Growth

Western Digital Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Western Digital's revenue will grow by 7.6% annually over the next 3 years.
Analysts assume that profit margins will increase from 16.8% today to 18.1% in 3 years time.
Analysts expect earnings to reach $2.2 billion (and earnings per share of $6.6) by about September 2028, up from $1.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.4 billion in earnings, and the most bearish expecting $1.7 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, down from 20.5x today. This future PE is lower than the current PE for the US Tech industry at 24.3x.
Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

Western Digital Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Heavy reliance on a small number of hyperscale/cloud customers (90%+ of revenue) exposes Western Digital to significant concentration risk-any shift to in-house custom storage or alternative technologies by these customers could materially impact long-term revenue and earnings.
Persistent decline in consumer and flat client segment revenues (down 12% and up only 2% YoY respectively) signals growing dependence on the cyclical cloud/datacenter market, posing risks to diversified topline growth and long-term revenue stability.
Ongoing global tariff uncertainty and potential for abrupt changes in trade policy increase operational complexity and could drive higher costs or sudden demand disruptions, leading to lower net margins and earnings volatility.
Secular shift towards cloud-native architectures and alternative storage technologies (including increased adoption of SSDs, custom storage solutions by hyperscalers, or emerging memory types) could eventually outpace HDD/UltraSMR advancements, threatening Western Digital's long-term relevance and affecting revenue growth.
Mix-driven gross margin improvements depend on successful ramp-up and customer adoption of new technologies (e.g., UltraSMR, HAMR); slower-than-anticipated transitions or failure in manufacturing yields and reliability could compress margins and dampen earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $89.143 for Western Digital based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $110.0, and the most bearish reporting a price target of just $62.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.9 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 8.4%.
Given the current share price of $94.54, the analyst price target of $89.14 is 6.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts Boost Western Digital Price Targets Amid Stronger Outlook and Positive Valuation Shifts