Is WDC Still a Buy as Growth Surges but Valuation Stays Expensive?

Western Digital Corporation WDC enters fiscal 2027 with sharply higher earnings expectations. Fiscal 2026 revenues rose 36% and non-GAAP earnings per share increased 104%, providing a strong base for the next leg of growth.

The trade-off is valuation. WDC trades above its industry on several common multiples, leaving less room for weaker demand, pricing or product execution.

WDC's Earnings Growth Is Accelerating

Near-term guidance supports that trajectory. For the first quarter of fiscal 2027, management expects $4.1 billion of revenues at the midpoint, earnings of $4 per share and a 55%-56% non-GAAP gross margin.

Western Digital's AI Exposure Supports Demand

Cloud generated $3.3 billion, or 89% of fourth-quarter fiscal 2026 revenues, and grew 43% year over year. Management sees AI inference, agentic AI and physical AI increasing retained data volumes and expects exabyte demand growth of more than 25%.

Seagate Technology Holdings plc STX also cited cloud data-center demand and AI-driven data growth as mass-capacity storage drivers. Sandisk Corporation SNDK reported fiscal 2026 Datacenter revenues up 437%, showing that data-infrastructure spending is benefiting multiple storage technologies.

WDC's Roadmap Could Extend Margin Gains

Western Digital expects its 40-terabyte ePMR platform to represent about half of nearline bits by the third quarter of fiscal 2027. UltraSMR is expected to reach about 60% of nearline exabyte shipments as fiscal 2027 ends.

Cost per terabyte declined about 8% year over year in the fiscal fourth quarter. Management continues to target roughly 10% annual reductions over the medium to long term as higher-capacity products scale, supporting further margin expansion.

Western Digital's Valuation Raises the Bar

WDC trades at 22.9X forward earnings versus 10.3X for its industry. Its price-to-sales multiple is 12.3X versus 5.4X for the industry, while its 17.9X price-to-book multiple exceeds the industry's 15.0X.

That premium can be supported by rapid growth, but it leaves less valuation protection if demand, pricing or technology transitions fall short of expectations.

WDC's Risks Complicate the Buy Decision

Customer concentration remains a source of volatility because Cloud accounts for 89% of revenues and large customers do not purchase on a linear schedule. Different product mixes can also create quarter-to-quarter swings in exabyte growth.

Execution risk runs through the roadmap. The 40-terabyte ePMR ramp, wider UltraSMR adoption and 44-terabyte HAMR introduction must progress on schedule for Western Digital to capture the expected capacity and cost benefits.

Strong Growth Signals Offset WDC's Weak Value Score

WDC still presents a favorable growth case, but the premium valuation makes the setup less forgiving. Investors must weigh rapid earnings expansion and rising storage demand against the execution required to support those expectations.

The stock currently carries a Zacks Rank #2 (Buy). Its Growth Score of A and  Momentum Score of A indicate favorable growth and momentum characteristics, supporting the near-term profile.

The Value Score of F signals a weaker value profile, while the VGM Score of C reflects a mixed combined reading across value, growth and momentum. The balance remains constructive, but valuation discipline is warranted. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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