Western Digital Stock Slips as Spending Plans Temper AI

Key Moments

Western Digital Corp. (NASDAQ: WDC) shares were down more than 1% in U.S. premarket trading after initially rising about 4% on its fiscal first-quarter beat and strong outlook.
Fiscal first-quarter 2027 adjusted earnings reached $4.64 per share and revenue rose 55% year over year to $4.38 billion, both coming in above analyst estimates.
The company projected elevated capital expenditures and highlighted higher input costs, even as it targets about a 10% year-over-year reduction in cost per terabyte in the near term.

AI Volatility Weighs on Shares Despite Earnings Beat

Western Digital Corp. (NASDAQ: WDC) traded lower by more than 1% in premarket U.S. dealings on Friday, as pressure on artificial intelligence-linked names overshadowed the company’s stronger-than-expected fiscal first-quarter performance and upbeat guidance.

The stock initially climbed roughly 4% after the storage manufacturer posted results that topped expectations and issued a robust forecast for the second quarter. However, the move reversed sharply following the earnings call, amid broader concerns about AI-related equities. Investors have been voicing unease about a potential shortage of capital required to support Silicon Valley’s rapid buildout of infrastructure that underlies emerging AI technologies.

AI Demand Drives Pricing and Revenue Growth

Hard disk drives and memory chips are viewed as core elements of AI architectures, contributing to strong demand and tight supply for these products. This dynamic has pushed prices significantly higher. Western Digital reported that its blended average selling price per terabyte increased 28% in its fiscal first quarter.

For the first quarter of fiscal 2027, adjusted earnings came in at $4.64 per share, ahead of analyst expectations of $4.08. Revenue advanced 55% from the same period a year earlier to $4.38 billion, surpassing the consensus estimate of $4.14 billion.

Metric	Reported	Consensus / Prior
Adjusted EPS (FQ1 2027)	$4.64	$4.08 (analyst expectation)
Revenue (FQ1 2027)	$4.38 billion	$4.14 billion (consensus)
Blended ASP per TB	+28%	Year over year
Non-GAAP Gross Margin	58.1%	43.9% a year earlier
Operating Margin	49.1%	Not stated
Adjusted EPS Growth	+161%	Year over year

Capex and Cost Dynamics Cloud Sentiment

Management laid out a higher spending path, noting that capital expenditures are expected to average 4% to 6% of revenue over the next five years. The company anticipates this ratio will be somewhat higher during the next two years.

Western Digital also pointed to increasing input costs. At the same time, it reiterated that it is on course to lower cost per terabyte by about 10% year over year in the near term, a move that could alleviate some of the margin pressure from rising expenses.

Outlook Tops Street on Revenue and Earnings

The company issued guidance that surpassed market expectations. Western Digital projected second-quarter revenue between $5.0 billion and $5.2 billion. The midpoint of $5.1 billion is roughly 12% above analyst expectations of $4.57 billion.

For adjusted earnings, management forecast a range of $5.60 to $6.00 per share. The midpoint of $5.80 stands about 20% above the consensus estimate of $4.82.

“Fiscal 2027 is off to a strong start, with results exceeding expectations, driven by robust customer demand and disciplined execution,” CEO Irving Tan said.

Margins, Cash Flow, and Capital Returns Improve

Profitability strengthened notably in the quarter. Non-GAAP gross margin widened to 58.1%, up from 43.9% in the prior-year period. Operating margin reached 49.1%, while adjusted earnings per share climbed 161% on a year-over-year basis.

Western Digital generated $1.60 billion in operating cash flow and $1.38 billion in free cash flow during the quarter. Reflecting this improved financial position, the company increased its quarterly cash dividend by 17% to $0.175 per share.

Analyst Perspective and Investor Concerns

“Western Digital reported an impressive beat and guided December-quarter ahead of street expectations,” analysts at Evercore ISI said in a note. However, they cautioned that investors will “struggle” with the sustainability of recent pricing gains and with assessing Western Digital’s ability to accelerate growth in the total data storage capacity it ships to customers.