Western Digital Earnings: Cloud Demand Stays Strong, and We Maintain Our $60 Valuation

We maintain our $60 fair value estimate for the shares of no-moat Western Digital with our cyclical rebound thesis intact. Fiscal 2025 first-quarter results met our expectations, and while guidance was light relative to our model, directionally we saw it as positive. We expect strong growth through calendar 2025 as Western rebounds from a steep cyclical downturn across calendar 2022 and 2023. We expect most of this growth to be led by cloud demand for mass-capacity drives, particularly for hard disk drives. The shares jumped more than 8% in after-hours trading due to better-than-expected profit in the quarter, which we see as an overreaction. Western’s margins have been stellar the past two quarters, but we maintain our forecast for these to come down over the next two years as prices normalize. We see the shares as overvalued.