Is Western Digital Stock a Compelling Buy Ahead of Q4 Earnings Release?
Western Digital Corporation WDC is set to report fiscal fourth-quarter 2026 results on Wednesday, after market close.
The Zacks Consensus Estimate for earnings is pegged at $3.35, suggesting a rise of 101.8% from the year-ago reported number. Management projects non-GAAP earnings of $3.25 (+/- 15 cents).
The consensus estimate for revenues is currently pegged at $3.7 billion, suggesting a 42.2% jump from the prior-year quarter’s figure. With strong demand, pricing and improved visibility across cloud, consumer and client segments, WDC expects revenue of $3.65 billion (+/- $100 million), implying about 40% year-over-year growth at the midpoint.
The company's earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 11.6%.
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WDC’s Earnings Whispers
Our proven model predicts an earnings beat for Western Digital this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is exactly the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Western Digital presently has an Earnings ESP of +3.22% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
What Could Drive Another Earnings Beat for WDC in Q4?
Following the separation of its flash memory business into SandiskSNDK in 2025, Western Digital has become a pure-play HDD company, making its financial performance increasingly tied to enterprise storage, hyperscale cloud spending and the rapid expansion of AI infrastructure. During its previous earnings report, management emphasized that virtually every AI workload ultimately increases long-term demand for enterprise HDDs, supporting sustained growth.
WDC is advancing high-capacity drives, including 44TB HAMR and 40TB ePMR, with plans beyond 100TB. Adoption of UltraSMR technology is expanding, with three major customers qualifying, supporting capacity growth. In May, WDC integrated post-quantum cryptographic capabilities into its next-generation Ultrastar UltraSMR hard drives. Specifically, these drives are already undergoing qualification with multiple hyperscale customers, signaling that large-scale cloud and AI infrastructure providers are taking quantum-era security threats seriously. In June, it demonstrated its Ultrastar HDD portfolio, featuring technologies such as UltraSMR, ePMR and HAMR at the Computex Event.
Aside from individual drives, it showcased a range of platform solutions designed for cloud providers, AI companies, neo-cloud operators and high-performance HPC environments, including Ultrastar Data Series JBOD systems, OpenFlex EBOF and RapidFlex NVMe-oF controllers. WD emphasizes predictable pricing to enable long-term customer planning, with recent high single-digit price increases. Long-term agreements extend into 2029, with flexible pricing for volume beyond contractual base requirements. Margin expansion remains a key strength. For the upcoming quarter, WDC expects non-GAAP gross margin to be between 51% and 52%. Non-GAAP operating expenses are projected to be $385-$395 million and interest and other expenses are expected to be approximately $10 million.
The company consistently generates impressive cash flow, supporting dividends and shareholder returns. WD has strengthened its balance sheet by reducing debt, including $3.1 billion from SNDK share monetization. It increased dividends by 20% and plans to continue share repurchases, maintaining a strong free cash flow margin. To sum up, Western Digital could outperform expectations on sustained hyperscale and AI-driven storage demand, favorable HDD pricing, strong free cash flow generation and improving enterprise storage spending.
Western Digital Corporation Price and EPS Surprise
Western Digital Corporation price-eps-surprise | Western Digital Corporation Quote
However, Western Digital faces risks from customer concentration, potential weakness in enterprise IT spending and the cyclical nature of the storage industry, where pricing can shift rapidly if supply outpaces demand. In addition, the company faces intense competition from peers like Seagate Technology Holdings plc STX and Micron Technology MU, which could pressure pricing and market share.
WDC Stock vs. Industry
WDC’s shares have rallied 604.9% in the past year, outperforming the Zacks Computer-Storage Devices industry’s rise of 354.2%. The stock has also outpaced the Zacks Computer & Technology sector and the S&P 500’s growth of 25.9% and 21.2%, respectively.
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STX has gained 453% while MU and SNDK have soared 663.7% and 2757.7% respectively.
Key Valuation Metric of WDC
Going by the price/earnings ratio, the company’s shares currently trade at 27.13 forward earnings compared with 10.34 for the industry.
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MU, STX and SNDK are trading at multiples of 5.43X, 23.85X and 6.64X, respectively.
Should Investors Buy WDC Shares Before Earnings?
Western Digital appears well-positioned heading into the fiscal fourth-quarter earnings. The company benefits from several powerful long-term trends: AI-driven storage demand, expanding hyperscale investments, improving enterprise HDD pricing, strong margin expansion, robust free cash flow generation and a focused HDD business following the Sandisk spin-off.
The combination of storage demand, improving profitability, disciplined HDD supply and stronger enterprise spending creates a favorable backdrop for continued earnings growth. If WDC delivers another earnings beat and reinforces confidence in sustained demand, the company could strengthen its position as a compelling pick for investors seeking exposure to the rapidly expanding AI infrastructure ecosystem.
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See Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).
