Western Digital Q2 Earnings Beat, Top Line Jumps Y/Y on AI Demand Boom

Western Digital Corporation WDC reported second-quarter fiscal 2026 non-GAAP earnings of $2.13 per share, surpassing the Zacks Consensus Estimate of $1.95. The bottom line expanded 78% year over year and 20% sequentially, exceeding the high end of management’s guidance of $1.88 (+/- 15 cents).For the fiscal second quarter, Western Digital generated $3.02 billion in revenue, up 7% sequentially and 25% year over year, driven primarily by strong data center demand and increased adoption of high-capacity hard disk drives (HDDs). The consensus estimate was pinned at $2.95 billion. The metric also crushed management’s expectations at $2.9 billion (+/- $100 million), reflecting its ability to scale reliable, high-capacity storage solutions to meet the needs of the AI-driven data economy.As AI and cloud adoption accelerate, demand for higher-density storage continues to rise. Western Digital is meeting this demand through close collaboration with hyperscale customers, delivering reliable, high-capacity drives at scale with strong performance and total cost of ownership. The company is advancing areal density gains, accelerating its HAMR and ePMR roadmaps, and driving adoption of higher-capacity and UltraSMR drives.During the quarter, it shipped more than 3.5 million latest-generation ePMR drives, supporting up to 26TB CMR and 32TB UltraSMR capacities, underscoring strong customer adoption. WDC shipped a total of 215 exabytes to customers, marking a 22% year-over-year increase.Western Digital Corporation Price, Consensus and EPS Surprise Western Digital Corporation price-consensus-eps-surprise-chart | Western Digital Corporation QuoteWestern Digital’s board declared a cash dividend of 1.25 cents per share, payable on March 18, 2026, to shareholders on record as of March 5, 2026. The dividend highlights the company’s commitment to consistent capital returns.In the past year, shares have gained 323.2% compared with the Zacks Computer-Storage Devices industry’s rise of 139.9%.Image Source: Zacks Investment ResearchQuarter in DetailRevenues from the Cloud end market (89% of total revenues) climbed 28% year over year to $2.7 billion, driven by strong demand for higher-capacity nearline products.Revenues from the Client end market (6%) were up 26% year over year to $176 million.Revenues from the Consumer end market (5%) fell 3% year over year to $168 million.MarginsWDC reported a non-GAAP gross margin of 46.1%, up 770 basis points (bps) year over year and 220 bps sequentially, above its guidance (44-45%). The improvement was supported by a steady transition to higher-capacity drives and rigorous cost management across production facilities and the supply chain.Non-GAAP operating expenses increased 11% year over year to $372 million, but declined 120 bps sequentially within expectations ($365-$375 million) on the back of solid operating leverage.Non-GAAP operating income totaled $1.02 billion, up 72% year over year, with margins expanding more than 930 bps to 33.8%.Balance Sheet & Cash FlowAs of Jan. 2, 2026, cash and cash equivalents were $2 billion at par as of Oct. 3, 2025.Long-term debt (including the current portion) was $4.7 billion as of Jan. 2, 2026, the same as the end of the prior quarter.Western Digital generated $745 million in cash from operations compared with $403 million in the prior-year quarter. Free cash flow amounted to $653 million in the quarter under review, up 95%. This robustness allowed management to return more than 100% of its free cash flow to shareholders through a combination of share repurchases and dividends, underscoring the strength in the company’s cash-generation profile.During the quarter, WDC repurchased approximately 3.8 million shares for $615 million and paid $48 million in dividends. Since launching the capital return program in fourth-quarter fiscal 2025, the company has returned a total of $1.4 billion to shareholders through buybacks and dividends.Solid Outlook for Fiscal Q3 2026Western Digital expects continued momentum in the fiscal third quarter, supported by sustained data center demand and further adoption of high-capacity drives. At the midpoint of guidance, the company expects non-GAAP revenues of $3.2 billion (+/- $100 million), up 40% year over year.Management projects non-GAAP earnings of $2.30 (+/- 15 cents).WDC expects non-GAAP gross margin in the range of 47-48%. Non-GAAP operating expenses are expected to be between $380 million and $390 million.Interest and other expenses are anticipated to be approximately $50 million.WDC’s Zacks RankCurrently, Western Digital sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks hereRecent Performance of Other CompaniesSeagate Technology Holdings plc STX reported second-quarter fiscal 2026 non-GAAP earnings of $3.11 per share, beating the Zacks Consensus Estimate of $2.83 and exceeding the high end of management’s guidance of $2.75 per share (+/- 20 cents). The company reported earnings per share (EPS) of $2.03 in the prior-year quarter. Non-GAAP revenues of $2.83 billion exceeded the Zacks Consensus Estimate by 2.7%. Revenues also surpassed the guidance midpoint, increasing 22% year over year.SAP SE SAP reported fourth-quarter 2025 non-IFRS EPS of €1.62, which increased 16% from the year-ago quarter. SAP’s fourth quarter was defined by strong cloud bookings and profitability. It reported total revenues on a non-IFRS basis of €9.68 billion, which increased 3% year over year (up 9% at constant currency or cc). At the center of this performance is SAP Business AI, which has rapidly evolved from a feature set into a meaningful growth driver across the ERP suite. Two-thirds of cloud order entry included SAP Business AI, signaling AI’s growing importance in deal conversion and expansion.Badger Meter, Inc. BMI reported EPS of $1.14 for fourth-quarter 2025, which missed the Zacks Consensus Estimate by 0.9%. However, the bottom line compared favorably with the year-ago quarter’s EPS of $1.04. Quarterly net sales were $220.7 million, up 7.6% from $205.2 million in the year-ago quarter, driven by higher utility water sales. The Zacks Consensus Estimate was pegged at $230.8 million.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the favorite stock to gain +100% or more in the months ahead. They includeStock #1: A Disruptive Force with Notable Growth and ResilienceStock #2: Bullish Signs Signaling to Buy the DipStock #3: One of the Most Compelling Investments in the MarketStock #4: Leader In a Red-Hot Industry Poised for GrowthStock #5: Modern Omni-Channel Platform Coiled to SpringMost of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor. While not all picks can be winners, previous recommendations have soared +171%, +209% and +232%.See Our Newest 5 Stocks Set to Double Picks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Badger Meter, Inc. (BMI): Free Stock Analysis Report Western Digital Corporation (WDC): Free Stock Analysis Report Seagate Technology Holdings PLC (STX): Free Stock Analysis Report SAP SE (SAP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks