Western Digital Plunges! Q4 Revenue and Earnings Beat, but Guidance Disappoints Market | Earnings Watch

Western Digital announced strong financial results, with Q4 revenue and adjusted earnings per share (EPS) both exceeding market expectations. Net profit surged more than 12-fold year-over-year, indicating that AI data demand is driving a recovery in the storage business.

The company's Q4 revenue reached $3.747 billion, a 44% year-over-year increase, higher than the analyst consensus of approximately $3.68 billion; adjusted EPS was $3.56, also exceeding the market expectation of $3.31.

Regarding guidance, the company expects next quarter's revenue to range between $4.0 billion and $4.2 billion (midpoint $4.1 billion), higher than the analyst consensus of $4.04 billion.

However, the market clearly expected a more significant "beat," especially given the company's impressive performance over several consecutive quarters and the substantial cumulative rise in its stock price.

Any forward guidance that does not significantly exceed expectations faces pressure from profit-taking. Western Digital fell as much as 10% in after-hours trading, having already risen nearly twofold this year.

Western Digital CEO Irving Tan stated that as global data generation continues to accelerate, the company remains confident in the sustainability of demand and its business prospects as it enters fiscal year 2027.

Revenue and EPS Both Beat Expectations; Quarterly Profit Surges 1215% Year-Over-Year

Western Digital achieved Q4 revenue of $3.747 billion, a 44% year-over-year increase, exceeding the market expectation of approximately $3.68 billion.

Profitability also surpassed expectations. The company's adjusted earnings per share (Non-GAAP EPS) reached $3.56, higher than the analyst expectation of $3.31.

On a GAAP basis, net income attributable to common shareholders for Q4 reached $3.195 billion, compared to $243 million in the same period last year, a year-over-year increase of 1215%; diluted earnings per share reached $8.21, a year-over-year increase of 1125%.

Excluding certain one-time items, the company's adjusted net profit was $1.382 billion, a 130% year-over-year increase, while adjusted EPS grew by 109% year-over-year.

In terms of margins, the company's Q4 GAAP gross margin reached 54.1%, an increase of 13.1 percentage points from the same period last year; the adjusted gross margin reached 54.4%. During the same period, the adjusted operating margin reached 44.2%, an increase of 16.1 percentage points from the same period last year.

Q1 Guidance: Revenue and EPS Above Consensus, But Fail to Satisfy Market

For the first quarter of fiscal year 2027, Western Digital expects revenue to range between $4.0 billion and $4.2 billion (midpoint $4.1 billion), higher than the analyst consensus of $4.04 billion; earnings per share are expected to be between $3.85 and $4.15, above the analyst expectation of $3.77; and Non-GAAP gross margin is projected to be between 55% and 56%.

In absolute terms, the midpoints of the Q1 guidance for both revenue and EPS exceeded analyst consensus—with a revenue midpoint of $4.1 billion and Non-GAAP EPS of approximately $4.00, both on a trajectory of sequential improvement.

However, the market clearly expected a more significant "beat," especially given the company's impressive performance over several consecutive quarters and the substantial cumulative rise in its stock price. Any forward guidance that does not significantly exceed expectations faces pressure from profit-taking.

CFO Kris Sennesael stated that as cloud computing and data-intensive workloads continue to expand, the company remains confident in long-term growth trends, margin expansion, and free cash flow growth.

AI Data Growth Drives Full-Year Performance Recovery

Looking at the full-year performance, Western Digital saw a significant rebound in fiscal year 2026.

The company's annual revenue reached $12.919 billion, a 36% year-over-year increase. Gross margin improved from 38.8% in the previous fiscal year to 48.9%; operating profit reached $4.453 billion, a 91% year-over-year increase. Adjusted operating profit reached $4.817 billion, a 107% year-over-year increase.

Full-year GAAP net income attributable to common shareholders reached $9.298 billion, a 481% year-over-year increase; adjusted net profit reached $3.883 billion, a 120% year-over-year increase.

Cash flow performance also improved concurrently. Operating cash flow for Q4 reached $1.389 billion, and free cash flow reached $1.281 billion; full-year operating cash flow reached $3.929 billion, and free cash flow reached $3.511 billion.

Stock Up Threefold This Year; Market Expectations Go Beyond Performance Improvement

Despite comprehensive earnings beats, Western Digital's stock price experienced a notable decline, reflecting a shift in investor focus from "performance recovery" to "whether growth can continue to beat expectations."

Western Digital's stock has risen approximately twofold year-to-date, with the market having already priced in the earnings improvement driven by the recovery in AI storage demand. Therefore, even though quarterly results exceeded analyst expectations, the company still needs to prove that its future growth rate can match its current valuation.

This decline also indicates that market requirements for AI-related companies are rising. Single-quarter profit growth is no longer sufficient to drive sustained stock price increases; investors are paying closer attention to order trends, margin changes, and the sustainability of AI data demand in the coming quarters.

Western Digital stated that the company will rely on its scale, technological capabilities, and operational efficiency to seize long-term opportunities brought by data growth.