Filing update · Western Digital (WDC)

Western Digital's hard-drive boom: 55% growth, 58% gross margin, and a share count shaped by converts

Western Digital grew fiscal first-quarter 2027 revenue 55% to $4.38 billion on cloud demand for hard drives, lifted gross margin to 57.8% from 43.5%, and guided to 66% to 72% growth next quarter. Behind the headline: two customers are 27% of revenue, settling convertible notes cost 9.3 million new shares, and GAAP earnings have swung with the leftover Sandisk stake.

Published
October 24, 2026
Data through
October 2, 2026
Latest filing used
October 22, 2026
Key numbers
Revenue, Q1 FY27
$4.38B
Up 55% year on year, 17% on the quarter [2]
Gross margin
57.8%
From 43.5% a year earlier [2]
Q2 FY27 guide
$5.1B
Midpoint, up 66% to 72% year on year [2]
Two largest customers
27%
14% and 13% of revenue (calculated from [1])
What changed

Western Digital, now a pure hard-drive maker after spinning off its flash business as Sandisk, is riding a surge in data center demand for high-capacity drives. The first quarter of fiscal 2027 beat its own guide and the outlook calls for faster growth still.

  • Revenue was $4.381 billion, up 55% year on year and 17% on the quarter [2].
  • Gross margin reached 57.8% on a GAAP basis and 58.1% non-GAAP; operating margin was 46.7% [2].
  • EPS was $4.63 GAAP and $4.64 non-GAAP [2].
  • Cash: operating cash flow $1.60 billion, free cash flow $1.38 billion [2].
  • Dividend raised 17% to $0.175 a quarter [2].
  • Guide: second-quarter revenue up 66% to 72% year on year [2].
The trajectory

Revenue and gross margin have risen in each of the last five quarters.

Charts: revenue, gaap gross margin
Revenue
0B2B4B6BQ1 FY26: 2.82B2.82BQ1FY26Q2 FY26: 3.02BQ2FY26Q3 FY26: 3.34BQ3FY26Q4 FY26: 3.75BQ4FY26Q1 FY27: 4.38B4.38BQ1FY27
GAAP gross margin
0%20%40%60%Q1 FY26: 43.5%43.5%Q1FY26Q2 FY26: 45.7%Q2FY26Q3 FY26: 50.2%Q3FY26Q4 FY26: 54.1%Q4FY26Q1 FY27: 57.8%57.8%Q1FY27

Five fiscal quarters as Western Digital reported them, for the continuing hard-drive business after the Sandisk separation; the fiscal year ends in late June or early July. Hover over or tab to a column for its value.

The numbers and their sources
Quarter Revenue GAAP gross margin
Q1 FY26 $2,818M [2] 43.5% [2]
Q2 FY26 $3,017M [8] 45.7% [8]
Q3 FY26 $3,337M [4] 50.2% [4]
Q4 FY26 $3,747M [4] 54.1% [4]
Q1 FY27 $4,381M [2] 57.8% [2]
Cloud is the business

Almost all the growth is cloud; client and consumer drives are small.

Chart: Revenue by end market, first quarter, $ millions
Revenue by end market, first quarter, $ millions
$0M$1B$2B$3B$4BCloud: Q1 FY26 $2,510M, Q1 FY27 $3,868M$3,868MCloudClient: Q1 FY26 $146M, Q1 FY27 $320M$320MClientConsumer: Q1 FY26 $162M, Q1 FY27 $193M$193MConsumer
As Western Digital reported them [1]. Cloud was 89% of fiscal 2026 revenue [3].
Show the numbers
ItemQ1 FY26Q1 FY27
Cloud$2,510M$3,868M
Client$146M$320M
Consumer$162M$193M
Reading the earnings

GAAP and non-GAAP EPS diverged sharply while Western Digital was disposing of its Sandisk shares, and have now converged.

Chart: Diluted EPS: GAAP against non-GAAP
Diluted EPS: GAAP against non-GAAP
$0.00$2.50$5.00$7.50$10.00GAAP: Q4 FY26 $8.21, Q1 FY27 $4.63$4.63GAAPNon-GAAP: Q4 FY26 $3.56, Q1 FY27 $4.64$4.64Non-GAAP
As reported [4] [2]. Fourth-quarter GAAP earnings were lifted by items tied to the retained Sandisk stake and debt-for-equity exchanges.
Show the numbers
ItemQ4 FY26Q1 FY27
GAAP$8.21$4.63
Non-GAAP$3.56$4.64
Anomalies worth a closer look

Five things in the filings that change how the headline numbers should be read.

Anomalies (5)
Two ways to read it

The same filings support two different conclusions. We set out both; this is not a view on whether to buy or sell the stock.

The two readings

The case that AI data centers have changed the economics of hard drives

On this reading Western Digital is a focused, debt-light supplier of the cheapest bulk storage in a market starved of capacity.

  1. 01
    Accelerating growth
    Revenue grew 55% [2] and the second-quarter guide implies 66% to 72% [2].
  2. 02
    Expanding margins
    Non-GAAP gross and operating margins reached 58.1% and 49.1% [2], and the guide points to about 60.5% gross margin next quarter [2].
  3. 03
    Strong cash generation
    Operating cash flow was $1.60 billion and free cash flow $1.38 billion in the quarter [2].
  4. 04
    Debt is largely gone
    Western Digital used Sandisk shares to redeem its senior notes and retire its term loan [5], leaving mainly convertible notes, now being called [1].
  5. 05
    Returning cash
    The quarterly dividend was raised 17% to $0.175 a share [2].

The case that this is a cyclical peak with concentrated buyers

On this reading record margins in a historically cyclical industry, sold to a handful of buyers, deserve caution.

  1. 01
    Customer concentration
    Two customers were 27% of revenue (calculated from [1]), and the business depends on large cloud customers' buying patterns [3].
  2. 02
    History of gluts
    The storage market has experienced excess capacity and price declines before [3].
  3. 03
    Forecast risk
    Western Digital warns its quarterly forecasts may differ materially from results [3].
  4. 04
    Dilution from converts
    Settling convertible notes added 9.3 million shares [1].
  5. 05
    Trade and materials
    Tariffs and rare-earth export limits could raise costs [3].
Hypotheses: short, medium and long term

Testable statements, each with what would support or contradict it and when the next evidence arrives. Thresholds marked "our marker" are ours, not Western Digital's.

Hypotheses (3)
  1. Short termH1
    Next quarter: Q2 FY27 results

    Revenue lands in the guided range at around 60% gross margin

    The guide is $5.1 billion at the midpoint, non-GAAP gross margin of 60% to 61% and non-GAAP EPS of $5.80 plus or minus $0.20 [2].
    What would support it
    Revenue at or above $5.1 billion [2] with gross margin inside 60% to 61%.
    What would contradict it
    Revenue below the range or gross margin below the 60% low end [2], the first sign that pricing is peaking.
    Next check: Q2 FY27 results, likely late January 2027 (last year's came on January 29 [8]).
  2. Medium termH2
    Next 12 months

    Growth broadens beyond the two largest customers

    The top ten customers' share fell to 64% from 73% [1], but two still account for 27% (calculated).
    What would support it
    The largest customer below 14% of revenue with total revenue still growing above 40% (our marker).
    What would contradict it
    Revenue growth slowing sharply in a quarter when one large customer pauses orders.
    Next check: Each quarterly report.
  3. Long termH3
    Three years and more

    Margins stay structurally above past cycle peaks

    Gross margin has risen for five straight quarters to 57.8% [2].
    What would support it
    Gross margin holding above 50% (our marker) through the next slowdown in cloud spending.
    What would contradict it
    A return to excess capacity and price cuts [3] that takes gross margin back toward the low 40s.
    Next check: Each annual report.
Risks and contrary evidence
  • Cyclicality. Oversupply has in the past led to underused factories and price cuts [3].
  • Customer buying patterns. Results depend on large cloud customers' deployment timing [3].
  • Trade and materials. Tariffs and China's rare-earth export limits could raise costs [3].
  • Cybersecurity. Western Digital has experienced security incidents in which unauthorized parties obtained access to its systems [3].
What would change the view
  • A second-quarter result or guide that stops the run of margin increases.
  • A slowdown in cloud revenue growth below 30% (our marker).
  • Signs of new hard-drive capacity being added across the industry.
Next check

Second-quarter fiscal 2027 results. Last year's came on January 29, 2026 [8], so expect the next update in late January 2027.

How this report was made

Every figure comes from Western Digital's own SEC filings, listed below; no market prices or third-party data were used. Statements were extracted from the filings with the help of an AI model, each quoted passage was matched against the filing text, and this report was written by Claude (Anthropic) from that evidence. Every figure was checked against the quoted filing text before publication. Figures marked "calculated" are simple arithmetic on reported numbers.

AI-Inflect screen

The deterministic screen's current reading for this company, market data through October 23, 2026. It is separate from the filing analysis above and can change daily; it is not a view on the stock. Open in AI-Inflect

Stage and setup
Stage
Extended Leader
Fundamentals
Strong
Inflection type
Revenue inflection
Technical setup
Base building
Sector
Software tech
Condition matrix · 8 true, 9 false, 0 unknown
  • Revenue growth positiveTrue
  • Revenue growth improvingTrue
  • Revenue growth acceleratingFalse
  • Revenue zero-crossing (loss→growth)True
  • Revenue improved 2 straight qtrsFalse
  • Revenue improved 3 straight qtrsFalse
  • Revenue improved 4 straight qtrsFalse
  • EPS improvingTrue
  • EPS loss→profit crossingFalse
  • Earnings acceleratingFalse
  • Gross margin expandingTrue
  • Operating margin expandingTrue
  • Operating leverageFalse
  • FCF improvingTrue
  • FCF negative→positive crossingFalse
  • FCF margin expandingTrue
  • Cash conversion improvingFalse
Sources

Company filings with the U.S. Securities and Exchange Commission (SEC).

  1. [1]Quarterly report, quarter ended October 2, 2026 (Q1 fiscal 2027) · Form 10-Q, filed October 22, 2026 · accession 0001628280-26-066933
  2. [2]First-quarter fiscal 2027 earnings release · Form 8-K, filed October 22, 2026 · accession 0001628280-26-066882
  3. [3]Annual report for fiscal 2026 · Form 10-K, filed August 14, 2026 · accession 0001628280-26-057139
  4. [4]Fourth-quarter fiscal 2026 earnings release · Form 8-K, filed August 5, 2026 · accession 0001628280-26-053305
  5. [5]Quarterly report, quarter ended April 3, 2026 · Form 10-Q, filed April 30, 2026 · accession 0001628280-26-029054
  6. [6]Third-quarter fiscal 2026 earnings release · Form 8-K, filed April 30, 2026 · accession 0001628280-26-028878
  7. [7]Quarterly report, quarter ended January 2, 2026 · Form 10-Q, filed January 29, 2026 · accession 0001628280-26-004207
  8. [8]Second-quarter fiscal 2026 earnings release · Form 8-K, filed January 29, 2026 · accession 0001628280-26-004131
  9. [9]Quarterly report, quarter ended October 3, 2025 · Form 10-Q, filed October 30, 2025 · accession 0001628280-25-047613
  10. [10]First-quarter fiscal 2026 earnings release · Form 8-K, filed October 30, 2025 · accession 0001628280-25-047539

This report is general information and education, not a recommendation to buy or sell any security and not personalised financial advice. It follows our editorial principles: every figure traces to the sources above, and figures we calculated are marked as such.

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