WDC Fell 11.6% in the Past Month. Is the Weakness an Opportunity?

Western Digital Corporation WDC shares have fallen 11.6% in the past four weeks, even as the hard disk drive maker delivers faster growth and higher profitability. The pullback raises the question of whether improving fundamentals outweigh a demanding valuation.

Cloud demand, pricing and product transitions support the earnings case. Yet customer concentration and a premium multiple leave little room for execution missteps.

Why WDC's Past-Month Slide Deserves Attention

Fiscal fourth-quarter revenues rose 44% year over year to $3.75 billion, while non-GAAP earnings advanced 109% to $3.56 per share. Those gains contrast with the stock's recent decline.

Image Source: Zacks Investment Research

Western Digital's Cloud Engine Is Still Growing

Cloud contributed $3.3 billion, or 89% of fourth-quarter revenues, and rose 43% year over year. High-capacity nearline demand and favorable pricing drove the result, while management continues to see more than 25% exabyte demand growth over the medium term.

WDC also sees AI inference, agentic AI and physical AI as sources of persistent data creation. Seagate Technology Holdings plc STX, another mass-capacity hard disk drive supplier, also cited cloud data-center demand in its fiscal fourth quarter and is scaling its HAMR-based Mozaic platform.

WDC's Margin Expansion Supports the Bull Case

Non-GAAP gross margin reached 54.4%, up 1,310 basis points year over year. The blended price per terabyte rose by the high teens, while cost per terabyte fell about 8%, widening earnings leverage.

For the first quarter of fiscal 2027, WDC expects non-GAAP gross margin of 55%-56% and revenues of about $4.1 billion at the midpoint. Management continues to target roughly 10% annual cost-per-terabyte reductions over the medium to long term.

Western Digital Faces Product and Customer Risks

Cloud concentration cuts both ways. With 89% of fourth-quarter revenues from that end market, purchasing shifts at a limited number of large customers can create quarterly volatility in exabyte shipments and pricing.

WDC is ramping 40-terabyte ePMR drives and UltraSMR technology and plans to ship 44-terabyte HAMR products in the first half of calendar 2027. Delays could weaken expected capacity and cost gains. Sandisk Corporation SNDK, WDC's former flash business, is advancing NAND technologies for AI inference and data-center workloads, offering a flash-based storage comparison.

WDC's Premium Valuation Leaves Less Room for Error

WDC trades at 22.9X forward earnings, versus 10.3X for the Computer-Storage Devices industry. That spread means investors are paying a sizable premium for growth, pricing discipline and technology execution.

The premium is harder to ignore after the stock's 496.9% gain over the past year. If demand, pricing or product ramps disappoint, multiple compression could offset part of the operating improvement.

Growth and Momentum Keep WDC's Signal Constructive

The 11.6% pullback has occurred alongside improving earnings rather than weakening operations. Whether it becomes an opportunity depends on continued cloud demand, margin expansion and timely product ramps, while valuation and customer concentration keep the risk-reward balanced.

WDC currently carries a Zacks Rank #2 (Buy). Its Growth Score of A and Momentum Score of A point to favorable growth and momentum characteristics, while the Value Score of F and VGM Score of C flag a weaker valuation profile and a mixed composite setup. That combination keeps the near-term signal constructive without removing valuation risk. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research