Western Digital (WDC) Deep Dive: Why We Own It

Why We Own Western Digital (WDC)

Western Digital makes the hard drives that store the world's data. For years investors treated the hard drive as a dying product. Demand has now turned sharply higher, and the reason is artificial intelligence. Training and running AI models creates enormous volumes of data, and all of it has to live somewhere affordable.

First, What Western Digital Is Today

Western Digital used to sell two very different things: spinning HDD hard drives and NAND flash chips. In February 2025 it split into two separate public companies. The flash business became Sandisk. Western Digital kept the hard-drive business.

So today Western Digital is a focused hard-drive maker. We hold both companies in the portfolio as separate positions. This deep dive is about the hard-drive business only. For the flash side, see our Sandisk deep dive linked at the end.

The Business — The Cheapest Way to Store Data at Scale

A hard drive stores data on spinning magnetic disks. It is slower than a flash SSD, but it is far cheaper for every terabyte stored. For data that must be kept but is not needed in a split second, that cost gap decides the choice.

Data centers call this the nearline tier. It sits between instant flash memory and slow tape archives. Most of the data a cloud provider keeps lives in this tier, and hard drives dominate it.

Western Digital sells into three end markets. Cloud covers the large data-center and hyperscaler customers, and this is now the biggest and fastest-growing part. Client covers drives sold to PC and laptop makers. Consumer covers retail products such as external backup drives.

The Technology Edge

Storing more data on each drive lowers the cost per terabyte and lifts margins. Western Digital does this by packing bits more densely onto each disk. Its current high-capacity drives reach around 32 terabytes. The newest method is HAMR, which uses a tiny laser to write data more tightly. Higher capacity per drive is the main way the company grows profit even when the number of drives sold stays flat.

A Two-Player Industry

Making hard drives at this level is extremely hard to enter. Decades of manufacturing know-how and patents stand in the way. As a result, only two companies supply high-capacity drives at scale: Western Digital and Seagate. Toshiba is a smaller third player.

This structure matters for profit. When supply is controlled by two disciplined makers, prices hold up better than in a crowded market. Both companies have learned from past boom-and-bust cycles and now add capacity carefully. That discipline is part of why margins have recovered so strongly.

“Hard drives were supposed to be in decline. The AI data boom reversed that. The cheapest way to store the flood of data AI creates is still a spinning disk, and only two companies make them at scale. That is the structural reason Western Digital is in the portfolio.”

At a Glance

The figures below come from our market-data feed as of 22 June 2026, drawn from the company's filings, consensus analyst estimates, and recent prices. Values are TTM where noted. A few terms may be new. EBITDA measures core cash generation, and EBITDA margin shows it as a share of sales. Net income margin is the bottom-line profit share. Forward EPS growth and Forward revenue growth are the expected rises next year. Forward P/E compares the price with expected profit, and Price-to-Book compares it with accounting value. Beta measures that swing. Net cash means cash exceeds debt. One figure needs a flag. The bottom-line net income margin is lifted by a one-time accounting gain from the February 2025 split. We judge real profitability on operating margin instead.

We do not publish a peer-median comparison table for Western Digital. The honest direct peer set is tiny. High-capacity hard drives are made at scale by only two listed companies, and Seagate is the other one. Seagate is also a Veloris Capital holding. A median built from one rival and ourselves would not tell you anything useful, so we compare the two qualitatively instead.

Profitability and the Balance Sheet

Gross margin reached about 50 percent in the most recent quarter, up roughly 10 percentage points from a year earlier. The gain came from selling more high-capacity drives and keeping costs tight. Operating margin runs near 37 percent over the last twelve months, and EBITDA was about $3.9 billion, roughly a third of sales. For a company once seen as a low-margin hardware maker, this is a clear step up. The bottom-line net income margin looks far higher, near 55 percent. That figure is lifted by a one-time accounting gain from the February 2025 split, so we treat operating margin as the honest measure of the underlying business.

Free cash flow over the last twelve months was about $2.9 billion, on operating cash flow of roughly $3.3 billion. The balance sheet has improved alongside it. Total debt is around $1.7 billion against roughly $3.2 billion in cash and short-term investments. That leaves Western Digital with about $1.5 billion more cash than debt, a net cash position. A balance sheet with no net borrowing lowers financial risk if the cycle turns.

The Earnings Trajectory

Revenue over the last twelve months was about $11.8 billion. The most recent quarter grew about 45 percent from a year earlier, the clean signal now that the February 2025 split is behind the company. Consensus analyst estimates point to earnings per share of about $9.94 this fiscal year, then about $18.05 next fiscal year. That is roughly 82 percent earnings growth next year, with sales expected to rise about 38 percent. All of these are large gains from a depressed base.

These are consensus estimates, not promises, and estimates can move in either direction. What matters for our process is the direction of the revisions, and here they have moved one way. Over the past 90 days, the average analyst forecast for next fiscal year rose from about $13.58 to about $18.05 a share. In the last 30 days, three of the roughly 19 analysts who cover the stock raised their next-year number, and none cut it. The current-year forecast climbed too, from about $8.86 to about $9.94 over the same period. Rising forecasts, with no downgrades, are one of the signals our screen looks for.

Valuation — Paying Up for Growth

Western Digital is an expensive stock, and we will be plain about it. The shares trade near $733, which puts the company's market value around $257 billion. That is about 39 times the earnings analysts expect over the next year, and roughly 27 times the company's accounting book value. The stock has also risen more than tenfold in the past year, a gain of about 1,117 percent, as the AI storage boom took hold. These are rich figures, well above where we usually buy.

Two things justify a closer look despite the premium. First, the earnings growth ahead is large, and forecasts keep rising. A high multiple on a sharply rising earnings base can still work out well. Second, our process does not reject a company for a high multiple alone. The screen weighs growth, profitability, and the direction of earnings estimates, with no fixed valuation ceiling. We re-test the rules behind it every quarter on data they were not built on, and keep only the ones that still hold up.

None of this means valuation does not matter. A high multiple adds risk if growth slows, and after a rise of this size a pullback can be sharp. It helps to separate two kinds of risk here. One kind moves with the whole market; the other is specific to this single stock. The Risk Overlay reacts to broad market signals, so it can cushion this position when the fall is part of a wider market decline. It does not step in when this one stock retraces on its own while the wider market stays healthy. That single-stock risk is real, and we hold the position with it in full view.

How Western Digital Passed Our Three-Pillar Process

We do not buy stocks because of a good story. We run every candidate through a systematic process with three pillars: a Stock Universe filter, an Optimizer for selection, and a Risk Overlay for exposure. Western Digital passed all three.

Pillar 1 — Stock Universe Filter

This filter screens for structural quality: real revenue growth, healthy margins, a sound balance sheet, and rising earnings forecasts. Western Digital cleared each one. Strong recent growth, a gross margin around fifty percent, a net cash balance sheet, and analyst forecasts moving up rather than down.

For more on why we hold a focused set of names, see Portfolio Construction: Why 15–30 Stocks Is the Sweet Spot.

Pillar 2 — Optimizer

The Optimizer decides which qualified names to hold, not how big each position should be. All Veloris Capital positions are equal-weighted. It selected Western Digital for exposure to the data-storage layer of the AI build-out. That layer sits apart from the chips that do the computing and the software that runs on top. Owning it spreads our AI exposure across more of the value chain.

Pillar 3 — Risk Overlay

Western Digital is a cyclical, higher-beta stock, with a beta of about 2.2. Its price swings roughly twice as much as the market in both directions. Every night, the system recalculates more than 20 risk indicators across markets and sets our equity exposure for the next day. When those signals turn cautious, the strategy lowers exposure across all positions, including Western Digital. The overlay sets exposure for the whole portfolio, never the size of one name.

The overlay is not a prediction machine. It does not claim to know where the market goes next week. It is time-tested to limit losses in a deep downturn, not to forecast prices. For the latest reading and portfolio snapshot, see the May 2026 Monthly Review.

Risks and What We Are Watching

• The cycle turns. Hard-drive demand and pricing have boomed and busted before. If cloud customers slow their buying, revenue and margins can fall quickly.
• The premium multiple. The stock is priced for continued growth. If growth disappoints, the high multiple can compress and amplify the drop.
• Substitution from flash. If the price of flash storage falls far enough, some demand could shift away from hard drives over time.
• Quarterly capacity pricing. The average selling price of high-capacity drives is the cleanest early signal of whether the cycle is still strong.
• The HAMR ramp. Smooth production of the new high-capacity drives supports both growth and margins. Delays would matter.

“The AI boom needs cheap mass storage, and only two companies make the high-capacity drives that provide it. Western Digital is one of them. Our process says that combination of growth, industry structure, and improving margins is worth owning, with the cycle risk fully acknowledged.”

For the rest of our memory and storage thesis, see our Micron (MU) Deep Dive, Seagate (STX) Deep Dive, and Sandisk (SNDK) Deep Dive. For the latest portfolio snapshot and risk overlay reading, see the May 2026 Monthly Review.

Western Digital (WDC) is a current Veloris Capital portfolio holding as of the publication date. Past performance is not an indication of future results. Your capital is at risk.

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