Western Digital (WD) is transforming itself into an AI infrastructure kingpin, moving beyond its traditional markets to capture its share of spending frenzy.
The company, which is ditching its legacy nameplate and rebranding as WD, recently announced its second-quarter fiscal year 2026 earnings, sparking bullish sentiment from analysts and boosting investor confidence this week. WD also reinforced its optimism on accelerating hard disk drive (HDD) demand from AI-heavy data centers.
In its earnings report, WD reported $3 billion in revenue, up 25% year over year. That was more than the Wall Streetconsensus of $2.7bn, and significantly better growth than a legacy hard drive maker would typically expect.
The Non-GAAP diluted EPS came in at $2.13, while the GAAP diluted EPS was $4.73.
In terms of cash flow, WD reported $745 million in operating cash flow and $653 million in free cash flow, and noted that it returned more than 100% of free cash flow to shareholders through stock repurchases and dividends.
The company reported delivering 215 exabytes to its customers, up 22% year-over-year, including 3.5 million drives or 103 exabytes of WD’s latest-generation ePMR, which offers capacities up to 32 terabytes.
The majority of their revenue came from Cloud, at $2.7 billion, or 89% of total revenue.
Western Digital Q2 Earnings at a glance:
- Revenue at $3 billion, up 25% year over year.
- Dividend approved at $0.125 per share, payable on March 18 to shareholders of record as of March 5.
- Non-GAAP EPS of $2.13, and GAAP diluted EPS was $4.73.
- $48 million spent in dividend payments, $615 million to repurchase 3.8 million shares.
Future Outlook and guidance
- The HDD maker expects revenue to grow to $3.2 billion in Q3 2026, underscoring 40% year-over-year growth.
- Gross margin is expected to be between 47% and 48%, up from 46.1% reported in Q2, driven by a shift towards higher-capacity drives and tight cost control at manufacturing sites.
- Diluted EPS expected to be $2.30, plus/minus $0.15.
WD positions as an AI infrastructure beneficiary
On Feb 1, CEO Irving Tan in a blog post elaborated on the company’s decision to become a company that provides support to AI infrastrucutre, along with the rebranding to WD. With growing demand for data storage, HDDs have become cost-effective solutions that also offer scalability and reliability.
This decision boosted investor confidence, adding to its post-earnings stock gains. WD continued to perform better, up 7.9% on Monday as it rang the bell on Nasdaq to mark its debut as WD, underscoring the name change from Western Digital Corporation and the new logo.
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One of the stronger-performing stocks in the storage solutions sector, WD’s stock is up 56% year-to-date, while posting a more than 400% gain over the year.
It can be partially attributed to the surge in data centers and the consequent increase in demand for cost-efficient data storage solutions, especially from hyperscalers. At a time, providers like Seagate Technology, Sandisk, and WD have emerged as crucial players in the AI race.
Now that it is rebranding as WD, investors are bullish about its future. Especially, after its move to separate from Sandisk, which it acquired in 2016 for $17 billion. In February 2025, Western Digital and Sandisk officially separated, and Sandisk was excluded from WD’s consolidated financial statements.
Feb. 2 proved beneficial for Sandisk as well, as shares gained more ground, up 15% at the close and up around 2.6% after hours, trading at $682.5, above its 52-week high of $676.69, which it reached on Jan 30, 2026, after posting a solid Q2 earnings report on Jan 29.
This separation is important for understanding WD’s decision to position itself as a growing AI storage provider. Let’s not forget that a majority of its revenue also came from Cloud.
Analysts are bullish on Western Digital
Seeing improved order visibility extending through 2028, Baird raised its price target for Western Digital to $310 from $180, keeping an Outperform rating.
Meanwhile, TD Cowen maintains a Buy rating and raised its price target to $325 from $200, citing strong execution that supports the company’s gross margin expansion.
Bank of America analyst Wamsi Mohan also raised the price target to $345 from $257, keeping a Buy rating. Mohan cited continued revenue and margin strength as key drivers and also raised FY26 revenue and EPS estimates to $12.4B and $9.01 from its previous $11.9B and $7.87, respectively.
Goldman Sachs analyst James Schneider also raised the price target to $220 from $165, keeping a Neutral rating. The firm also noted strong trading, buoyed by exceeding expectations, increased investor confidence, tight HDD supply, and hyperscaler demand, reported by TheFly. The firm also noted WD’s position as a key beneficiary of the dynamic storage market.