Western Digital reported strong fiscal fourth-quarter results, with revenue and adjusted earnings per share both exceeding market expectations. Net profit surged more than 12-fold year-over-year, signaling that AI data demand is fueling a recovery in the storage business.

Revenue for the fourth quarter came in at $3.747 billion, a 44% increase year-over-year, surpassing the analyst consensus of approximately $3.68 billion. Adjusted earnings per share hit $3.56, also beating the expected $3.31.

Regarding guidance, the company expects next quarter's revenue to range between $4.0 billion and $4.2 billion (midpoint of $4.1 billion), which is higher than the analyst consensus of $4.04 billion. However, the market clearly anticipated a more significant "beat," especially given the company's string of strong quarterly performances and the substantial run-up in its stock price. Any forward outlook that does not significantly exceed expectations faces profit-taking pressure. Western Digital shares fell as much as 10% in after-hours trading, following a nearly 200% gain year-to-date.

CEO Irving Tan stated that as global data generation continues to accelerate, the company is confident in sustained demand and its business outlook as it enters fiscal 2027.

Revenue and EPS Beat Estimates; Quarterly Profit Surges 1,215%

Western Digital’s fourth-quarter revenue reached $3.747 billion, a 44% increase year-over-year, exceeding the market expectation of roughly $3.68 billion. Profit performance also surpassed forecasts. The company’s adjusted non-GAAP EPS was $3.56, above the analyst estimate of $3.31. On a GAAP basis, net income attributable to common shareholders hit $3.195 billion in the fourth quarter, compared to $243 million a year ago, a 1,215% increase. Diluted EPS reached $8.21, up 1,125% year-over-year. Excluding certain one-time items, adjusted net income was $1.382 billion, up 130% year-over-year, and adjusted EPS grew 109%. On the margin front, the GAAP gross margin for the fourth quarter was 54.1%, up 13.1 percentage points year-over-year; the adjusted gross margin was 54.4%. The adjusted operating margin reached 44.2% during the period, an improvement of 16.1 percentage points from the same quarter last year.

Q1 Guidance: Revenue and EPS Above Consensus, but Fails to Satisfy Market

For the first quarter of fiscal 2027, Western Digital expects revenue between $4.0 billion and $4.2 billion (midpoint of $4.1 billion), above the analyst consensus of $4.04 billion. It forecasts EPS ranging from $3.85 to $4.15, surpassing the analyst estimate of $3.77. The non-GAAP gross margin is expected to be between 55% and 56%. In absolute terms, the midpoint of Q1 guidance for revenue ($4.1 billion) and non-GAAP EPS (approximately $4.00) exceeds analyst consensus and is on a sequential improvement trajectory. However, the market clearly wanted a more substantial "beat," especially given the company's track record of strong quarterly results and the significant stock price appreciation. Any forward guidance that doesn't significantly exceed expectations faces profit-taking pressure. CFO Kris Sennesael noted that as cloud computing and data-intensive workloads continue to expand, the company remains confident in long-term growth trends, margin expansion, and free cash flow growth.

AI Data Growth Drives Full-Year Business Recovery

Looking at the full year, Western Digital experienced a significant rebound in fiscal 2026. The company reported full-year revenue of $12.919 billion, a 36% increase year-over-year. The gross margin improved to 48.9% from 38.8% in the prior year. Operating profit reached $4.453 billion, up 91% year-over-year. Adjusted operating profit was $4.817 billion, up 107% year-over-year. Full-year GAAP net income attributable to common shareholders was $9.298 billion, a 481% increase year-over-year, while adjusted net income was $3.883 billion, up 120%. Cash flow also improved. Fourth-quarter operating cash flow was $1.389 billion, with free cash flow of $1.281 billion. Full-year operating cash flow reached $3.929 billion, and free cash flow was $3.511 billion.

Stock Up 200% Year-to-Date; Market Expectations Now Go Beyond Mere Improvement

Despite the comprehensive earnings beat, Western Digital’s stock price experienced a notable decline, reflecting that investor focus has shifted from "earnings recovery" to "whether growth can continue to exceed expectations." The stock has roughly tripled year-to-date, with the market already pricing in the earnings recovery driven by AI storage demand. Consequently, even with quarterly results surpassing analyst estimates, the company still needs to prove that its future growth rate can match its current valuation. This price drop also indicates that market demands for AI-related companies are rising. Single-quarter profit growth is no longer sufficient to sustain stock price increases. Investors are now more focused on order trends in coming quarters, margin changes, and the sustainability of AI data demand. Western Digital stated that it will leverage its scale, technical capabilities, and operational efficiency to capitalize on long-term opportunities arising from data growth.