Western Digital Stock Is Down Sharply: Why the Bull Case Still Looks Strong

Western Digital (WDC) stock has experienced a significant decline of 45% from its recent high following a strong rally. While the correction reflects profit-taking and concerns about the sustainability of elevated storage pricing and demand, the company's fundamentals remain robust. WDC stock's entry into fiscal 2027 shows strong operating momentum, driven by solid demand for hard disk drives (HDDs) and the expansion of artificial intelligence (AI) infrastructure.

WDC demonstrated solid growth in fiscal 2026, with revenue increasing 36% to $12.9 billion, gross margin expanding 970 basis points to 49.1%, and operating margin rising 1,290 basis points to 37.3%. The company's earnings and free cash flow were solid, with EPS more than doubling to $10.22 and free cash flow reaching $3.5 billion.

Looking ahead, Western Digital's growth is supported by the rapid buildout of AI infrastructure, creating a structural tailwind for the company. Agentic AI systems and physical AI applications, such as autonomous vehicles and industrial automation, are expected to drive significant storage demand. Western Digital also benefits from expanding higher-capacity storage products, which can improve data center deployments' economics and margins.

Management's first-quarter fiscal 2027 outlook indicates ongoing strength, with revenue expected to grow approximately 45% year-over-year and gross margin reaching 55% to 56%. Analysts project a substantial increase in earnings per share (EPS), with expectations of $19.65 for fiscal 2027, representing about 100.5% growth. The projected growth for fiscal 2028 is even more impressive, with EPS expected to rise by 73.2% to $34.03.

Despite the correction, Western Digital's valuation appears reasonable compared to its growth potential. The stock trades at 23.38 times forward earnings, and with a solid EPS growth trajectory, the valuation looks compelling. Analysts maintain a Strong Buy consensus rating, and the average price target of $665.48 indicates a potential upside of 48% from its Tuesday closing price of $450.75. The recent pullback has improved the stock's risk-reward profile, providing an attractive entry point for investors.