Why Western Digital’s Recent Earnings Outlook and Valuation Make It a Strong Buy Despite Near-Term Volatility

Western Digital (WDC) has emerged as a compelling investment opportunity amid a volatile market, driven by robust earnings revisions, attractive valuation metrics, and a strategic alignment with the AI-driven storage boom. While near-term fluctuations in its Flash segment and consumer markets have introduced noise, the company’s core strengths in high-capacity HDDs and its pivot toward AI infrastructure position it for durable long-term growth.

Earnings Revisions: A Tale of Resilience and Strategic Focus

Western Digital’s fiscal 2025 results underscore its ability to navigate sector-specific challenges while capitalizing on high-growth opportunities. In Q2 2025, the company reported revenue of $4.3 billion, a 5% sequential increase and 41% year-over-year rise, driven by 55% of revenue from cloud storage—primarily nearline HDDs [1]. Gross margins held steady at 35.4% GAAP and 35.9% non-GAAP, reflecting disciplined cost management [1]. By Q3 2025, despite a 5% sequential revenue decline to $2.29 billion, gross margins expanded to 39.8%, demonstrating operational efficiency amid softer demand in client and consumer segments [2]. This resilience highlights the company’s focus on high-margin HDDs, which now account for 90% of revenue in key quarters [3].

The strategic separation of its Flash business into an independent SanDisk entity, expected to conclude in early 2026, further underscores WDC’s commitment to prioritizing durable HDD growth. This move is projected to unlock shareholder value, as evidenced by the $2 billion share repurchase program and a $0.10 per share dividend initiation [4].

Valuation Metrics: Undervaluation Amid Industry Peers

Western Digital’s valuation appears compelling when compared to peers and historical benchmarks. Its trailing P/E ratio of 16.87 is significantly lower than Seagate’s 24.87 and Samsung’s 12.83, while its PEG ratio of 0.06 suggests it is undervalued relative to earnings growth [5]. The company’s price-to-book (P/B) ratio of 5.22 in Q2 2025, up from 2.24 in FY2024, reflects growing investor confidence in its asset base and future cash flows [6].

In contrast, Seagate’s PEG ratio of 1.03 indicates fair valuation, while Samsung’s PEG of 3.67 suggests overvaluation relative to its growth prospects [5]. These comparisons highlight WDC’s superior value proposition, particularly as it transitions to a pure-play HDD business.

Long-Term AI-Driven Demand: A Structural Tailwind

The AI storage market is poised for explosive growth, with projections indicating expansion from $294 billion in 2025 to $1.77 trillion by 2032, driven by generative AI and data center expansion [7]. Western Digital is uniquely positioned to benefit from this trend. Its HDDs, with a cost-per-terabyte advantage over SSDs, are ideal for “cool storage” applications in AI workloads, where data is stored but not frequently accessed [8]. The company’s mastery of UltraSMR technology has enabled 44TB drives by 2026, with a roadmap to 100TB by 2030 [9].

Moreover, the HDD market itself is projected to grow from $45.51 billion in 2024 to $70.11 billion by 2030, with WDC’s 51% market share and leadership in HAMR technology ensuring its dominance [10]. Analysts from Mizuho and Wells Fargo have upgraded WDC’s ratings, citing its long-term growth potential in data center infrastructure [11].

Conclusion: A Strong Buy for the Patient Investor

While near-term volatility in the Flash segment and consumer markets may weigh on short-term sentiment, Western Digital’s earnings revisions, attractive valuation, and strategic alignment with AI-driven demand create a compelling long-term case. The company’s focus on high-margin HDDs, technological innovation, and capital return initiatives positions it to outperform in a market where data creation is accelerating exponentially. For investors willing to look beyond quarterly fluctuations, WDC offers a rare combination of undervaluation and durable growth.

Source:
[1] Western Digital Reports Fiscal Second Quarter 2025 Financial Results [https://www.westerndigital.com/company/newsroom/press-releases/2025/2025-01-29-western-digital-reports-fiscal-second-quarter-2025-financial-results]
[2] Western Digital Reports Fiscal Third Quarter 2025 Financial Results [https://www.westerndigital.com/company/newsroom/press-releases/2025/2025-04-30-western-digital-reports-fiscal-third-quarter-2025-financial-results]
[3] Western Digital Q4 buoyed by cloud buyers as nearline ... [https://blocksandfiles.com/2025/07/31/western-digital-q4-2025/]
[4] Western Digital Reports Fiscal Fourth Quarter and ... [https://investor.wdc.com/news-releases/news-release-details/western-digital-reports-fiscal-fourth-quarter-and-fiscal-year-2]
[5] Seagate Technology PE ratio, current and historical analysis [https://fullratio.com/stocks/nasdaq-stx/pe-ratio]
[6] Western Digital (WDC) Financial Ratios [https://stockanalysis.com/stocks/wdc/financials/ratios/]
[7] AI Powered Storage Market Size, Recent Trends, Growth [https://www.datamintelligence.com/research-report/ai-powered-storage-market]
[8] Western Digital's Strategic Position in a Resurgent HDD ... [https://www.ainvest.com/news/western-digital-strategic-position-resurgent-hdd-market-bull-case-priced-2508/]
[9] AI-Powered Storage Market Size, Share Report and Trends [https://www.marketresearchfuture.com/reports/ai-powered-storage-market-8703]
[10] Western Digital's Earnings Outlook and Strategic Position [https://www.ainvest.com/news/western-digital-earnings-outlook-strategic-position-ai-driven-storage-market-bullish-case-long-term-growth-2507/]
[11] Western Digital (WDC) | Finance information [https://stockcircle.com/stocks/wdc]