Western Digital delivered the quarterly results it needed on Thursday, with the hard-drive maker handily beating expectations for its fiscal first-quarter earnings.

The company's widening profit margins and optimistic second-quarter outlook should ease concerns that the hard-drive boom has plateaued. If anything, demand from artificial-intelligence hyperscalers looks stronger than investors had anticipated.

Shares of Western Digital jumped 1.8% to $360.64 after hours. The stock fell 6.4% in regular trading, leaving it down 53% from it's all-time closing high on June 18.

Western Digital reported adjusted earnings of $4.64 a share for the September quarter, surpassing Wall Street's call for $4.11 a share, according to FactSet. Revenue surged 55% year over year to $4.4 billion, ahead of analysts' consensus estimate of $4.1 billion.

The company's gross margin -- an indicator of its pricing power in negotiations with customers -- rose to 57.8% from 54.1% the previous quarter and 43.5% a year ago.

This is breaking news. Read a preview of Western Digital's earnings below and check back for more analysis soon.

Western Digital stock has fallen hard in the second half of the year as jitters over a possible artificial-intelligence bubble intensified. The company's earnings report on Thursday afternoon could reset the narrative.

Investors are looking for evidence that the hard-drive maker still has room to raise prices and expand margins. Strong fiscal first-quarter numbers and an optimistic outlook could convince Wall Street that the cyclical hard-drive market is still on the upswing. Whatever happens in the broader AI market is beyond Western Digital's control.

AI both requires and produces massive amounts of data. Hyperscalers store files that aren't immediately needed on hard-disk drives, or HDDs, and Western Digital and Seagate Technology are the only U.S. companies that produce them.

Western Digital stock has surged nearly 750% since the start of 2024 on the back of that demand. But shares have now tumbled almost 50% to $376.07 from their all-time closing high on June 18.

With the stock trading at 15 times projected 12-month earnings -- down from as high as 43 times in June -- the market appears to be pricing Western Digital as if the industry has peaked, says Erik Woodring, an analyst at Morgan Stanley. He argues that the fundamentals show the opposite.

"We see no evidence of irrational pricing or capacity behavior," Woodring wrote in a research note Tuesday. "Recent checks point to HDD fundamentals strengthening, meaning a stronger demand backdrop, a broadening customer base, and accelerating pricing."

Morgan Stanley reiterated an Overweight rating on the stock, though it trimmed the price target to $643 from $676. The firm also made Seagate a "Top Pick."

Analysts tracked by FactSet expect Western Digital to report adjusted earnings of $4.11 a share for the September quarter, up from $1.78 a year ago. They anticipate that revenue jumped 47% year over year to $4.1 billion.

Western Digital tends to narrowly beat estimates for revenue while blowing earnings predictions out of the water, so investors shouldn't expect solid headline numbers to trigger an automatic jump in the stock.

Woodring, for instance, also wants to see strong guidance for hard-drive pricing in the current quarter, ending December. That would suggest the supply-demand imbalance that has fueled Western Digital's rise is still at play.

The company may also face questions about its competitors. While Seagate is Western Digital's main rival, both stocks fell sharply earlier this month after a report from Nikkei that Japanese supplier Toshiba plans to double its production capacity for drives used in AI data centers in fiscal 2027. Toshiba declined to comment on the report.

Theoretically, Toshiba's investment would give Western Digital customers more leverage when negotiating long-term supply contracts, helping explain the pullback at the start of the month.

"It will be hard for Toshiba to compete in the higher capacity end of the market, but we have spoken to many hyperscalers who say they will push as much volume to Toshiba as they can," UBS analyst Timothy Arcuri said in a research note.

Western Digital's commentary on Thursday afternoon will help clarify whether the threat of new supply from Toshiba is having a real impact on discussions with customers.