Western Digital Corp. (NASDAQ:WDC) stock traded lower Thursday despite reporting fiscal fourth-quarter earnings and revenue that beat Wall Street estimates.

Despite the earnings beat, Western Digital’s outlook fell short of elevated investor expectations, triggering a sector-wide pullback in AI memory and storage stocks. Peers including Seagate Technology Holdings plc (NASDAQ:STX) and Sandisk Corp. (NASDAQ:SNDK) also traded lower Thursday.

Earnings Snapshot

Adjusted earnings more than doubled to $3.56 per share from a year earlier, topping the analyst consensus estimate of $3.29.

Revenue increased 44% year over year to $3.75 billion, ahead of the consensus estimate of $3.69 billion. Revenue, gross margin and adjusted earnings met or exceeded the company’s guidance.

Shipments totaled 231 exabytes, up 22% from a year earlier, driven by strong nearline demand.

Cloud revenue rose 43% to $3.3 billion and accounted for 89% of total revenue. Client revenue increased 61% to $225 million, while consumer revenue climbed 38% to $187 million.

Gross margin expanded 13.1 percentage points to 54.4%, supported by a higher mix of high-capacity hard disk drives, favorable pricing and manufacturing execution.

Operating income increased 126% to $1.66 billion, while operating margin expanded to 44.2% from 28.1% a year earlier.

Cash Flow And Liquidity

Western Digital generated $3.5 billion in free cash flow during fiscal 2026 and returned $3.1 billion to shareholders through dividends and share repurchases.

The company completed the monetization of its remaining 1.7 million Sandisk shares, exchanging them for 4.8 million Western Digital shares.

During the fourth quarter, Western Digital repurchased 2.3 million shares for about $1 billion. That included $328 million used to settle convertible notes in cash, avoiding the issuance of about 773,000 new shares.

The company declared a quarterly dividend of 15 cents per share, payable Sept. 17, 2026, to shareholders of record as of Sept. 8, 2026.

Key Updates

Western Digital said it remains on track to launch its 44TB HAMR hard disk drive in the first half of calendar 2027. Management said customer qualification has exceeded expectations for capacity, performance and reliability.

The company also began shipping next-generation 40TB EPMR hard disk drives during the fourth quarter, with volume production underway for two customers.

Management said Ultra SMR technology is expanding to a third hyperscale customer and is expected to account for about 60% of nearline exabyte shipments by the end of fiscal 2027.

Executives also cited continued demand from AI training, AI inference, agentic AI and physical AI workloads, noting that about 80% of hyperscale data center data remains stored on hard disk drives because of cost, scalability and power-efficiency advantages.

Outlook

For the first quarter of fiscal 2027, Western Digital expects revenue of about $4.1 billion, plus or minus $100 million, representing roughly 45% year-over-year growth.

The company forecast gross margin of 55% to 56% and adjusted earnings of $3.85 to $4.15 per share, compared with the analyst consensus estimate of $3.81. The revenue outlook of $4.0 billion to $4.2 billion compares with the consensus estimate of $4.04 billion.

Management said it expects demand across AI, cloud and storage markets to remain strong, supported by long-term growth in data creation.

The company also plans to increase exabyte shipments through technology improvements and operational efficiencies without significantly expanding manufacturing capacity, while continuing targeted investments in heads, media operations and automation.

WDC Price Action: Western Digital shares were down 14.93% at $441.66 during premarket trading on Thursday, according to Benzinga Pro data.

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