Key Points
Western Digital (Nasdaq: WDC) reports fiscal first-quarter results after the close today. The company guided to revenue of $4.1 billion (±$100 million), about 45% higher than a year ago, and adjusted EPS of $3.85 to $4.15. Consensus sits near $4.07 a share on roughly $4.15 billion in sales.
The stock hit a 52-week high of $799.87 on June 18. It closed at $332.00 on October 16, a drop of almost 60%, even though management said in February that it was "pretty much sold out for calendar 2026."
One headline did most of the damage. On October 2, Nikkei reported that Toshiba plans to spend about ¥60 billion (~$400 million) to double its hard-drive capacity by fiscal 2027. WDC fell 10.22% that day.
The other side of the argument came from Morgan Stanley this week. Its industry checks point to a possible 400-exabyte shortfall of hard drives in 2027–2028, with spot deals priced at two to five times contracted levels.
Western Digital doesn't make AI chips. It makes the hard drives where AI's data ends up.
Back in February, its CEO said the company had firm purchase orders from its top seven customers and was "pretty much sold out for calendar 2026." Two of those customers had already signed long-term agreements for 2027, and one had signed for 2028.
Even so, the stock has lost more than half its value since June.
After the close tonight, Western Digital has to show which of those two facts matters more.
The Numbers Going In
Start with what the company has promised. For the September quarter, Western Digital guided to $4.1 billion in revenue, plus or minus $100 million. That's up about 45% from a year ago. Its forecast for adjusted EPS is $3.85 to $4.15. A year ago it earned $1.78, so the low end of that range is more than double.
Wall Street is sitting near the top of the range at about $4.07 a share, according to Zacks. The company has beaten consensus four quarters running, so a beat is already priced in.
The last report shows how that plays out. On August 5, Western Digital posted $3.75 billion in revenue, up nearly 44%, and EPS of $3.56, both ahead of estimates. The stock fell about 11% after hours because guidance came in only modestly above what analysts had already penciled in.
How a Sold-Out Company Loses Half Its Value
From $799.87 on June 18 to $332.00 on October 16, the stock fell nearly 60% while the company kept reporting record growth. Three reasons stand out.
The first is Toshiba. On October 2, Nikkei reported that Toshiba plans to invest roughly ¥60 billion to double its hard-drive manufacturing capacity by fiscal 2027. Toshiba holds only about 10% of the market by storage capacity, but it has said it wants 30%. Tight supply has been the core of the bull case for hard drives, because it's what let Western Digital raise prices and push gross margins above 50%. WDC fell 10.22% on October 2. Since spinning off SanDisk in early 2025, it has no flash business to cushion the blow.
The second is AI financing. Hyperscalers are expected to spend roughly $700 billion on capital projects this year, increasingly with borrowed money. Investors watched CoreWeave's bonds slide toward distressed levels, and they saw one of the biggest AI labs take a 25% cut to its valuation. When the market starts doubting who pays for the build-out, every supplier gets sold, including the ones that are sold out.
The third is that the whole memory and storage group came under pressure at once. Last week's chip selloff pulled down Micron, SanDisk and Seagate together. The Nasdaq fell about 4.5% for the week ended October 16.
The Other Side of the Trade
Morgan Stanley kept its Overweight rating on both Western Digital and Seagate this week. It called the recent selloff an overly punitive read on where the cycle stands. Its industry checks suggest demand for hard drives is accelerating, with a broader customer base and the possibility of a 400-exabyte shortfall in 2027 and 2028. Spot deals are pricing at two to five times contracted levels. The firm's forecasts for Western Digital sit roughly 10% above consensus.
Analyst Erik Woodring said hard drives look "like memory a year ago."
Western Digital makes a similar argument. Roughly 80% of the data in hyperscale data centers sits on hard drives. Management has raised its long-term forecast for exabyte growth from mid-teens to more than 25% a year, and it has hinted the figure could start with a three. Every inference query, image and log file has to be stored somewhere, long after the GPUs that created it are replaced.
UBS still sees AI tailwinds but remains cautious: strong demand doesn't guarantee strong prices forever.
What to Watch Tonight
December-quarter guidance. A modest raise is what sank the stock in August.
Gross margin. If margins hold above 50% while Toshiba is adding capacity, the oversupply argument gets much weaker. If they slip, the bears have their evidence.
Contract length. Every new multi-year agreement locks in exabyte volumes and prices. The more of 2027 and 2028 that is already spoken for, the less Toshiba's new factory matters.
One note: reported net margin is inflated by gains on Western Digital's remaining SanDisk shares. Operating margin is the cleaner read.
What Lands Next
By the time you read this, Tesla, Meta, IBM, Texas Instruments and Lam Research will all have reported overnight. The Tesla report in particular will set the tone for growth stocks into the weekend.
Thursday is the busiest day of the week. Procter & Gamble, Lockheed Martin, Valero, Honeywell, Comcast, Union Pacific, Blackstone and American Airlines report before the bell. Western Digital reports after the close, along with Newmont, Bloom Energy and Deckers.
Next week, Seagate reports on Tuesday, October 27, and its results will be the read-across for Western Digital. Microsoft and Alphabet follow on Wednesday, October 28, then Amazon on Thursday, October 29. Their capex plans decide how long drives stay sold out.
Western Digital sold out its 2026 supply before the year began, and the stock still lost more than half its value. Tonight's call is its chance to explain the gap.
This article is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
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