Western Digital Beats Estimates but Falls for Second Day, Down 1.22% in Pre-Market

Western Digital shares fell in pre-market trading on Friday, following a drop of over 6% on Thursday, despite the company reporting better-than-expected fiscal 2027 first-quarter earnings and issuing optimistic guidance.

Investors are weighing rising capital expenditures, higher input costs, and concerns over the sustainability of AI-driven data center demand against the company's strong operational performance.

Nevertheless, Western Digital shares are still up 106% in 2026, driven by growing demand for high-capacity hard disk drives used in AI data centers.

Strong Demand Meets Supply Constraints

Wedbush analyst Matt Bryson maintained an Outperform rating and a $650 price target, citing Western Digital's strong quarterly results and outlook.

In a CNBC interview on Friday, Bryson said the drag on the stock stems from broader concerns about AI infrastructure spending, rather than company-specific issues.

He estimates the hard disk drive market faces a shortage of approximately 400 exabytes, representing over 20% of total market capacity, as major cloud customers seek additional storage.

Bryson expects supply tightness to persist even if power shortages, financing challenges, or regulatory hurdles delay data center construction.

AI Spending Concerns Remain in Focus

Bryson also highlighted strong returns on data center investments from smaller new cloud providers.

He noted that payback periods of under one year indicate demand for computing power remains robust enough to support continued infrastructure spending.

However, according to Bloomberg, Vital Knowledge questioned whether data center spending can sustain its current pace and whether the large order backlog can translate into actual revenue.

These concerns reflect broader investor uncertainty over the sustainability of the AI infrastructure boom.

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Capital Expenditure Surge, Western Digital Expands Capacity

Western Digital's capital expenditures more than tripled in the first fiscal quarter, invested in higher-capacity hard drives.

According to Bloomberg Intelligence, the increased spending reduced free cash flow margin by approximately 3 percentage points.

Chief Financial Officer Kris Sennesael said capital expenditures should average roughly 4% to 6% of revenue over the next five years.

However, he expects spending to be moderately above that range over the next two years as the company expands capacity to meet demand.

Strong Outlook and Dividend Increase

Western Digital expects second-quarter adjusted earnings per share of up to $6, well above the analyst consensus estimate of $4.80.

The company also raised its quarterly dividend by 17%, signaling confidence in its cash generation capabilities despite rising investment demands.

"We are executing effectively to meet growing storage demand," said Chief Executive Officer Irving Tan.

WDC Stock Movement: Pre-market trading data on Friday showed Western Digital shares down 1.22% at $349.88.