Western Digital Shares Approach Peak on Strong Cloud Demand

Western Digital Corporation's stock is advancing toward its annual high, posting significant gains since the start of 2025. Trading recently at $214.00, the equity is nearing its 52-week peak of $221.23, with the company's market capitalization standing at approximately $72.5 billion. This momentum raises questions about its sustainability.

The data storage specialist reported impressive results for its first fiscal quarter of 2026. Revenue reached $2.82 billion, marking a substantial 27% year-over-year increase. On a non-GAAP basis, earnings per share came in at $1.78. Profitability metrics showed marked improvement, with the non-GAAP gross margin expanding to 43.5%, a significant rise from 36.4% in the prior-year period. The operating margin was reported at 30.4%, and free cash flow generation was strong at $599 million.

Management demonstrated confidence in the firm's financial health through active capital returns to shareholders. The quarterly dividend was raised by 25% to $0.125 per share, while share repurchases totaled $553 million during the quarter. The company currently holds a Zacks Rank of #1, and its shares are held by 84 hedge fund positions.

Should investors sell immediately? Or is it worth buying Western Digital?

Hyperscale Demand Fuels Growth

A primary driver behind the revenue surge is heightened demand for Nearline hard disk drives (HDDs) from hyperscale data center operators. The strategic shift within the industry toward higher-capacity drives is supporting price stability and has been a key contributor to Western Digital's growth trajectory. The company's focus on its HDD business, following the separation of its flash memory operations, is credited with enhancing overall profitability.

Forward-Looking Guidance and Catalyst

For the ongoing second fiscal quarter of fiscal 2026, management has provided guidance anticipating revenue of around $2.9 billion. They project a non-GAAP gross margin of approximately 44.5% and estimate non-GAAP earnings per share of $1.88. These forecasts suggest expectations for continued sequential growth and sustained cost discipline.

Western Digital is scheduled to release its official quarterly results on January 29. Market observers suggest that if demand for Nearline HDDs persists and margin performance aligns with projections, the current positive momentum in the share price could find further fundamental support.