Western Digital WDC reported strong fiscal first-quarter results and issued an upbeat outlook as demand for hard disk drives (HDDs) continued to benefit from artificial intelligence infrastructure spending.
However, concerns about rising capital expenditure, potential increases in industry supply, and the sustainability of demand prompted mixed reactions from Wall Street analysts.
The company’s revenue rose 55% year over year to $4.38 billion, beating analyst expectations of $4.14 billion, while adjusted earnings per share reached $4.64, above consensus estimates.
Western Digital shares rose 1.06% on Friday.
The stock had more than doubled in value during the year through Thursday’s close, leaving investors to weigh the company’s strong operating performance against its valuation.
Analysts split over Western Digital’s valuation outlook
Morgan Stanley raised its price target on Western Digital to $668 from $643 and maintained an Overweight rating.
The firm described the results as a “strong, pricing-driven beat” and highlighted the company’s robust guidance for the December quarter.
However, Morgan Stanley also cautioned that “the market continues to be fickle”.
UBS took a more cautious stance, lowering its price target to $435 from $470 while retaining a Neutral rating.
The firm acknowledged strong results and demand constrained by supply but warned that higher capital expenditure, accelerating industry supply and uncertainty about demand beyond the current cycle could put further pressure on the stock’s valuation.
Citi maintained its Buy rating, saying the results reinforced its positive outlook for the HDD storage cycle.
However, it lowered its price target because of a reduced valuation multiple for comparable companies.
Goldman Sachs also flagged valuation risks.
The firm said the shares could trade modestly lower despite strong results and guidance above consensus, citing elevated near-term capital expenditure and the possibility of competitors increasing capacity.
AI infrastructure supports demand and pricing
Western Digital’s results reflect continued demand for data storage linked to the expansion of AI infrastructure.
Chief Executive Irving Tan told analysts on Thursday that demand for the company’s HDDs remained strong and was increasingly coming from customers outside its traditional base, including neocloud providers and AI frontier labs.
The company’s blended average selling price per terabyte of storage increased 28% during the first quarter, indicating stronger pricing alongside higher revenue.
Tan said the company’s visibility into demand was extending further.
He added that Western Digital had visibility through 2030 or 2031 across its seven largest customers.
The outlook suggests that demand could remain supportive over the coming years, although analysts differ on how much of that potential is already reflected in the share price.
Strong second-quarter guidance and higher dividend
Western Digital expects fiscal second-quarter revenue of $5 billion to $5.2 billion, representing approximately 69% year-over-year growth at the midpoint.
It forecasts an adjusted gross margin of 60% to 61% and adjusted earnings per share of $5.60 to $6.
The company reported first-quarter profit of $1.78 billion, or $4.63 per share, compared with $1.15 billion, or $3.07 per share, a year earlier.
Western Digital also increased its quarterly dividend by 17% to 17.5 cents per share. The dividend is payable on December 17 to shareholders of record as of December 4.
The strong results and outlook underline the benefits of rising storage demand, but concerns over investment spending, competitive supply, and valuation continue to divide analysts.
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