Western Digital Corporation WDC entered fiscal 2026 with strong momentum, driven by robust demand from cloud and AI workloads. For first-quarter fiscal 2026, the company reported revenues of $2.82 billion, up 27% year over year, with non-GAAP EPS of $1.78 and a gross margin of 43.9%. The company's top and bottom lines exceeded guidance. Cloud end market (89% of total revenues) climbed 31%, driven by solid demand for higher-capacity nearline products.
Management expects the proliferation of generative AI-driven storage deployments to result in a client and consumer device refresh cycle, and boost content growth in smartphone, gaming, PC and consumer in the long run. Increasing AI adoption is likely to drive increased storage demand across both HDD and Flash at the edge and core, thereby providing ample business opportunities. The rise of Agentic AI across industries is driving strong demand for unstructured data storage. The company is already seeing real benefits from Agentic AI in accelerating product development.
Also, the company shipped 204 exabytes of storage to customers, up 23% year over year in the fiscal first quarter. Customers are transitioning to higher-capacity drives, with shipments of its latest ePMR products -- offering up to 26TB CMR and 32TB UltraSMR -- surpassing 2.2 million units in the September quarter. The reliability, scalability and TCO benefits of its ePMR and UltraSMR technologies remain key to its success in the data center market.
Western Digital plans to build on this with its next-generation HAMR drives. All top seven customers have issued purchase orders through the first half of 2026, with five extending through year-end, and one major hyperscale customer securing supply for all of 2027. Meanwhile, its next-gen ePMR drives are set to complete qualification by early 2026, ensuring a smooth and cost-effective transition to HAMR. For the second quarter of fiscal 2026, management anticipates ongoing revenue growth, supported by strong data center demand and better profitability, driven by increased adoption of high-capacity drives.
For second-quarter fiscal 2026, Western Digital anticipates non-GAAP revenues of $2.9 billion (+/- $100 million) at the mid-point of its guidance, up 20% year over year. Management projects non-GAAP earnings of $1.88 (+/- 15 cents). It expects non-GAAP gross margin in the range of 44-45%. Non-GAAP operating expenses are expected to decline sequentially between $365 million and $375 million.
However, customer concentration and leveraged balance sheet remain a concern for Western Digital. Moreover, the company faces stiff competition from Seagate Technology Holdings plc STX, Hitachi, Samsung, NetApp, Inc. NTAP, Intel, Micron along with other companies.
Seagate is benefiting from strong global cloud demand and rapid growth in high-capacity HAMR drive adoption. With strong demand visibility, the company is ramping up shipments of its Mozaic HAMR products. These high-performance, durable and cost-effective drives support existing workloads, such as social media and video platforms, as well as new AI-driven applications. As AI drives data creation and consumption, Seagate is well-positioned for sustained profitable growth. It shipped more than 1 million Mozaic drives during the September quarter.
In September 2025, Seagate announced an alliance with Acronis to provide MSPs and enterprises with secure, scalable storage for AI-driven data growth. Backed by cloud and AI demand, it projects second-quarter fiscal 2026 revenues of $2.7 billion (+/- $100 million), up 16% year over year at the midpoint. Non-GAAP earnings are expected to be $2.75 per share (+/- 20 cents).
NetApp's increasing demand for cloud storage and AI solutions bodes well. In the fiscal first quarter, the company won more than 125 AI and data lake modernization deals. The company expanded its AI ecosystem and launched a new AIPod Mini with Intel. This solution tackles the cost and complexity challenges of implementing AI at the department and team levels. It also completed the NetApp reference architecture for NVIDIA Cloud Partners. The launch of AI reference architectures with NVIDIA (AIDP), Intel (AIPod Mini), Cisco (FlexPod) and Lenovo (AIPod), and certification for NVIDIA DGX SuperPOD, indicates NetApp is deeply embedded in the evolving AI stack. NetApp expects fiscal 2026 to be a pivotal year for enterprise AI storage. For second-quarter fiscal 2026, the company anticipates revenues to be in the range of $6.625-$6.875 billion.
In the past three months, shares have surged 106.2% compared with the Zacks Computer-Storage Devices industry's growth of 43.3%.
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In terms of forward price/earnings, WDC's shares are trading at 22.47X, higher than the industry's 21.12X.
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The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised up 13.5% to $7.38 over the past 60 days.
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Currently, Western Digital sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
This under-the-radar company specializes in semiconductor products that titans like NVIDIA don't build. It's uniquely positioned to take advantage of the next growth stage of this market. And it's just beginning to enter the spotlight, which is exactly where you want to be.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $971 billion by 2028.
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This article originally published on Zacks Investment Research (zacks.com).