Buy Western Digital (WDC) Stock as Q4 Earnings Approach?

Western Digital WDC) will report results for its fiscal fourth quarter after the closing bell on Wednesday, August 5, giving investors another important read on enterprise storage demand and the ongoing AI infrastructure buildout.

The report also arrives at a pivotal time for memory and storage stocks after a sharp sector-wide pullback in recent weeks, leaving many investors wondering whether the recent weakness has created an attractive buying opportunity.

That is especially true for Western Digital stock, which remains up more than 200% year to date and over 1,100% during the past three years, even after pulling back more than 30% from its 52-week and all-time high of $799 a share.

Despite the recent volatility, Western Digital's fundamentals remain compelling. AI-driven data center investments continue to fuel demand for high-capacity hard disk drives (HDDs), while cloud customers are expanding storage capacity to support increasingly data-intensive workloads.

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Western Digital's Q4 Expectations

Based on Zacks estimates, Western Digital’s Q4 sales are thought to have increased 42% to $3.7 billion from $2.61 billion in the comparative quarter. More impressive, Q4 EPS is expected to leap nearly 102% to $3.35 versus earnings of $1.66 per share a year ago.

Rounding out FY26, Western Digital's annual sales are expected to dip 3% to $12.88 billion following the separation of its Sandisk SNDK) flash memory business.

However, full-year EPS is projected to soar 104% to $10.07 from $4.93 in FY25 as higher margins and improved profitability more than offset the lower revenue base.

Several factors could determine whether Western Digital exceeds Q4 expectations:

• Continued strength in hyperscale cloud spending and AI infrastructure deployments.
• Healthy demand for nearline HDDs used in large-scale data centers.
• Sustained pricing discipline across the storage market.
• Stable gross margins following several quarters of significant improvement.

Investors will also be closely watching management's commentary regarding customer spending trends, cloud capital expenditures, and demand visibility heading into fiscal 2027.

Perhaps even more important than the headline numbers will be Western Digital's forward outlook. With AI training and inference workloads requiring enormous amounts of storage capacity, investors will want reassurance that enterprise storage demand remains durable despite recent concerns surrounding semiconductor spending.

The Zacks ESP

Optimistically, the Zacks ESP (Expected Surprise Prediction) indicates Western Digital could once again surpass earnings expectations, with the Most Accurate and recent estimate among Wall Street analysts having Q4 EPS slated at $3.60 and more than 7% above the underlying Zacks Consensus of $3.35 (Current Qtr below).

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Notably, Western Digital has surpassed earnings expectations for 13 consecutive quarters with an average EPS surprise of 11.55% in its last four quarterly reports.

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AI Continues to Drive the Storage Cycle

Although much of the AI conversation centers around GPUs from Nvidia NVDA) and advanced memory chips from Micron Technology MU), massive amounts of data must ultimately be stored, retrieved, and managed efficiently.

That dynamic has created an attractive backdrop for Western Digital's enterprise HDD business, where hyperscale cloud providers keep investing in increasingly dense storage solutions to support AI applications.

Higher-capacity drives also allow customers to lower total ownership costs, making them particularly attractive as AI data centers continue expanding.

While NAND flash pricing remains cyclical, long-term secular demand from cloud computing, enterprise storage, AI servers, and edge computing continues to provide favorable industry tailwinds.

Keeping that in mind, it’s noteworthy that Western Digital's Zacks Computer-Storage Devices Industry currently ranks in the top 9% of more than 240 Zacks industries. The group also includes Sandisk and other notable companies such as Super Micro Computer SMCI) and Teradata TDC).

WDC Valuation Comparison (P/E)

Even after its tremendous run over the past year, Western Digital's valuation remains fairly reasonable relative to the broader market.

WDC trades at 29X forward earnings, which is a noticeable premium to its Zacks Industry average of 16X but is near the benchmark S&P 500’s 21X.

For investors seeking AI exposure at a more moderate valuation, Western Digital may still represent an appealing middle ground between the faster-growing — but more expensive — AI infrastructure stocks.

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Bottom Line

Western Digital enters earnings with improving fundamentals, favorable AI-related demand drivers, and expectations that remain achievable.

If the computer storage giant delivers another earnings beat while reinforcing confidence in enterprise storage spending, WDC shares could have additional room to recover following the recent correction among memory and storage stocks.

Supporting that bullish outlook is the continued trend of rising EPS revisions, which has helped Western Digital stock earn a Zacks Rank #1 (Strong Buy) heading into its Q4 report.

Investors looking for a reasonably valued AI infrastructure play may want to keep a close eye on Western Digital's results after Wednesday's closing bell.

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This article originally published on Zacks Investment Research (zacks.com).

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