According to a research report released by Goldman Sachs on October 22, Western Digital's management expressed strong confidence in the industry's demand outlook and revealed that its seven major clients have extended their demand forecasts to 2030 and beyond. At the same time,Management implicitly acknowledges that competitors (Goldman Sachs believes it is)ToshibaThere is a possibility of capacity expansion, although the company believes that the expansion is insufficient to disrupt the industry's supply and demand balance.
Based on the above assessment, Goldman Sachs maintained its "neutral" rating on Western Digital and lowered its 12-month price target from $615 to $540. The core logic is that peer valuation multiples have generally declined. Goldman Sachs also reiterated its preference for Seagate, which has a "buy" rating, citing its smoother progress in the HAMR technology transition and stronger pricing momentum.
Quarterly results exceeded expectations across the board, with both cloud and client applications performing well.
Western Digital's revenue for the third fiscal quarter (3Q26) reached $4.381 billion, exceeding Goldman Sachs' estimate of $4.192 billion and the market consensus of $4.163 billion, respectively, representing a year-over-year increase of 55.5% and a quarter-over-quarter increase of 16.9%. Gross profit margin was 58.1%, more than 200 basis points higher than Goldman Sachs' forecast and market consensus. Non-GAAP earnings per share were $4.64, about 12% higher than the market expectation of $4.13.By business line, cloud revenue was $3.868 billion, higher than Goldman Sachs' estimate of $3.747 billion; Client revenue reached $320 million, significantly exceeding Goldman Sachs' estimate of $246 million and the market consensus of $223 million; Consumer business revenue was $193 million, slightly lower than expected.
In terms of pricing and costs, the company's average hybrid price per terabyte rose 28% year-on-year this quarter, partly driven by increased pricing opportunities for non-nearline products. At the same time, the cost per terabyte decreased by 5% year-on-year, driving gross profit margin to 58.1%, about 200 basis points higher than market expectations.
Next quarter's guidance will significantly exceed Wall Street expectations.
Western Digital's guidance for the fourth fiscal quarter (4Q26) exceeded market expectations across the board. The median revenue guidance is $5.1 billion, higher than Goldman Sachs and the market consensus forecast of approximately $4.58 billion, representing a year-over-year increase of approximately 69%. The gross profit margin guidance range is 60% to 61%, with the median being approximately 246 basis points higher than market expectations. The median non-GAAP earnings per share guidance is $5.80 (range $5.60 to $6.00), which is about 21% higher than the market expectation of $4.81.Driven by the aforementioned better-than-expected results and guidance, Goldman Sachs has raised its earnings per share forecast for Western Digital for the calendar years 2026/2027/2028 by an average of approximately 14%. The EPS forecast for 2027 has been raised from $23.65 to $27.80, and for 2028 from $29.00 to $33.00.
Capacity Expansion and Technology Roadmap: Promising Growth, But Hidden Concerns Remain
Regarding capacity ramp-up, the company's data storage capacity (exabytes) increased by 22% year-on-year this quarter. Management expects the growth rate to accelerate further and reiterated its long-term annual growth target of 25%. Shipments of 40TB ePMR products continue to climb, and are expected to reach 30% of near-line shipments in the second fiscal quarter of FY27, and reach a cross-point of approximately 50% in the third fiscal quarter of FY27.Regarding HAMR technology, management stated that it expects to complete the certification of two customers in the first calendar quarter of 2027, begin shipping in the first half of 2027, and complete the certification of the other two customers at the same time. The company also stated that near-term capital expenditures will be temporarily higher than its long-term target range of 4% to 6%, with a focus on magnetic heads, magnetic media, and factory automation—a move Goldman Sachs believes is intended to reduce reliance on external suppliers.
Nevertheless, Goldman Sachs pointed out,Potential long-term unit capacity expansion by competitors is a core risk factor suppressing HDD's stock valuation multiple.Based on this judgment, Goldman Sachs lowered Western Digital's valuation multiple from 22 times P/E to 18 times, correspondingly reduced its target price from $615 to $540, and used a normalized EPS of $30. Based on the current share price of $354.19, the target price implies a potential upside of approximately 52.5%.
Compared to Seagate, the top choice, the supply and demand situation remains supportive.
Goldman Sachs maintained its "neutral" rating on Western Digital and emphasized that it prefers to allocate a "buy" rating to Seagate at the relative value level.Goldman Sachs believes that Seagate has basically completed the switch to HAMR technology, has stronger pricing momentum, and is expected to achieve marginal market share growth in the coming year.Goldman Sachs also believes that the supply and demand fundamentals of the entire HDD industry remain favorable: Western Digital's seven core customers have provided demand forecasts extending to 2030 and beyond, and the overall restraint on the industry's supply side has not fundamentally changed in the short term. However, once competitors initiate larger-scale capacity expansion, the supply and demand premium currently supporting the sector's valuation will face structural pressure. Goldman Sachs listed key risks including: the early or delayed implementation of the HAMR roadmap, the emergence of new consumer and enterprise storage application scenarios, and the substantial expansion of competitors' unit capacity.
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