What’s Behind Western Digital’s Slumping Stock Price?
Western Digital (NASDAQ: WDC) has embarked on a new chapter, marked by a significant transformation. Following the successful completion of its planned separation from SanDisk, the two entities have begun trading as independent public companies, effective February 24, 2025. This strategic move has resulted in Western Digital retaining its Hard Disk Drive (HDD) business, while its flash storage and memory segment has been rebranded as SanDisk (NASDAQ: SNDK), reviving a prominent brand nearly a decade after its acquisition. Amidst this development, Western Digital’s stock price has declined 7% over the past week, outpacing the S&P 500’s 2% drop.
The decline in WDC’s stock price indicates that investors harbor concerns regarding the company’s prospects without its flash segment, a business unit that had previously been a significant contributor to Western Digital’s revenue.
Image by K. Mishina from Pixabay
What’s Next For WDC?
Western Digital’s leadership has undergone a transformation, with Irving Tan succeeding David Goeckeler as CEO, who now leads SanDisk. Don Bennett will serve as interim CFO. The exponential growth of global data, fueled by the rapid adoption of Artificial Intelligence (AI), is driving demand for innovative storage solutions. As a result, HDD exabyte shipments are expected to grow at a compound annual growth rate (CAGR) of 23% from 2024 to 2028. Western Digital is well-positioned to capitalize on this trend, leveraging its expertise in scalability, cost-effectiveness, and sustainability to support the growth of AI, cloud, and enterprise applications. HDDs remain a crucial component for cloud providers, supporting a range of applications including cloud services, AI data lakes, media storage, and machine learning.
We have revised Western Digital’s Valuation to $61 per share, based on a $5.82 expected EPS and a 10.5x P/E multiple for the fiscal year 2025. That said, the company’s valuation is almost 24% higher than the current market price (as of Feb. 26). Also, check out our analysis of Western Digital’s Revenue for more details on the company’s key revenue streams.
WDC’s Recent Quarterly Performance
WDC’s recent Q2 2025 (ended December 27) performance was a resounding success, driven by record-breaking nearline shipments and robust adoption of UltraSMR (shingled magnetic recording) technology. The company’s Q2 2025 results were impressive, with net sales soaring 41% year-over-year (y-o-y) to $4.3 billion, primarily due to higher HDD, SDD, and Flash shipments. Cloud represented 55% of total revenue at $2.3 billion and grew more than double y-o-y, driven by an increase in nearline HDD shipments. Client revenue was up 4% y-o-y due to higher average selling prices (ASPs) as bit shipments declined. However, Consumer revenue fell 8% y-o-y in Q2, due to lower shipments in Flash and HDD and pricing in Flash. Gross margins also saw a significant boost, jumping to 35.4% from 16.2% in the prior year period. In addition, the company’s diluted earnings per share came in at $1.77 for Q2 2025 compared to a loss of 93 cents in Q2 2024. Its adjusted EPS was $1.77 vs ($0.75) in Q2 2024.
Looking ahead to Q3, the company’s management has guided $3.75 billion to $3.95 billion in revenue, with anticipated gross margins ranging from 31.5% to 33.5%. However, operating expenses are expected to rise in the range of $700 million to $720 million due to one-time separation costs. The HDD segment is expected to witness a mid-to-high single-digit percentage revenue decline, albeit with a gross margin improvement of approximately 50 basis points as average prices per unit trend upward.
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