Key Highlights
- Q3 revenue reached $3.34 billion, representing a 45% year-over-year increase and surpassing the $3.23 billion Street estimate.
- Earnings per share totaled $2.72, marking a 97% year-over-year surge and exceeding the $2.36 analyst forecast.
- Gross margin expanded to 50.5%, representing a year-over-year improvement of 1,040 basis points.
- Cloud segment delivered $3.0 billion in revenue, accounting for 89% of total sales with 48% year-over-year growth.
- TD Cowen increased its price objective to $500 from $325 while maintaining a Buy recommendation.
Shares of Western Digital (WDC) advanced 5.27% to reach $434.52 following the company’s announcement of exceptional fiscal Q3 2026 performance, with both revenue and profit figures significantly exceeding Wall Street projections.
Western Digital Corporation, WDC
Quarterly revenue totaled $3.34 billion, marking a 45% year-over-year expansion and beating the consensus forecast of $3.23 billion. Earnings per share registered at $2.72, reflecting a 97% year-over-year increase and comfortably surpassing the $2.36 Street estimate.
The company’s gross margin reached 50.5% during the quarter, expanding 1,040 basis points compared to the prior year and 440 basis points sequentially. Operating income totaled $1.3 billion, representing a 106% year-over-year jump, with operating margin coming in at 38.6%.
The cloud segment emerged as the primary growth catalyst. Cloud revenue totaled $3.0 billion, comprising 89% of overall revenue while posting 48% year-over-year growth. Company leadership attributed this performance to increased demand for higher-capacity nearline storage solutions.
Total unit shipments reached 222 exabytes, climbing 34% year over year. This figure included 4.1 million EPMR drives spanning 118 exabytes, with capacity configurations reaching up to 32 terabytes.
Average selling prices increased 7% sequentially and 9% year over year during the March quarter. Pricing on a per-terabyte basis grew 9% compared to the previous year, bolstered by long-duration customer contracts.
The company generated $978 million in free cash flow, representing a 29% free cash flow margin. During the period, Western Digital bought back 2.9 million shares valued at $752 million while distributing $43 million in dividend payments.
Western Digital also announced a 20% increase to its quarterly dividend, raising it to $0.15 per share, with payment scheduled for June 17, 2026 to shareholders of record as of June 5.
SanDisk Transaction Eliminates Debt
The divestiture of 5.8 million SanDisk shares produced $3.1 billion in debt reduction. Western Digital concluded the quarter with a net cash position of $450 million, retaining 1.7 million SanDisk shares in its portfolio.
Since initiating its capital return initiative in fiscal 2025, the company has distributed $2.2 billion back to shareholders.
On the technology front, 44-terabyte HAMR and 40-terabyte EPMR drives are currently undergoing customer qualification processes. HAMR technology is being evaluated by four customers, while the 40-terabyte EPMR variant is with three. The company’s product development pipeline extends beyond 100 terabytes.
UltraSMR technology has gained traction with the three largest customers, with two now fulfilling nearly all their exabyte requirements through this solution. Western Digital targets UltraSMR to constitute approximately 60% of exabyte shipments by fiscal 2027.
Forward Outlook and Analyst Commentary
For the fourth quarter, Western Digital projected revenue of $3.65 billion, with a variance of $100 million, indicating approximately 40% year-over-year growth at the midpoint. The company anticipates gross margin between 51% and 52%, with non-GAAP earnings per share of $3.25, plus or minus $0.15.
The Q4 forecast arrived 18% above consensus estimates, though shares experienced some after-hours selling pressure. TD Cowen attributed the pullback to modestly slower gross margin expansion — 60–65% for the June quarter compared to 90% in March — relative to Seagate’s implied 80% growth rate.
TD Cowen elevated its price target to $500 from $325 while reaffirming its Buy rating. The firm forecasts $21 in calendar year 2027 earnings per share based on 8% year-over-year average selling price growth.
Recent insider transaction data revealed $28.7 million in stock sales by company insiders, with no purchase activity documented during the reporting period.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
