Western Digital Stock Up 170%: Can the AI Rally Continue?

Western Digital's stock has skyrocketed 170% in 2026, driven by massive spending on artificial intelligence infrastructure. The company's fiscal Q3 2026 results were a major catalyst, with revenue jumping 45% year-over-year to $3.34 billion and adjusted earnings per share soaring 97% to $2.72, both handily beating Wall Street expectations.

The core driver is a severe shortage of hard disk drives (HDDs) created by incredible demand for data storage in AI data centers. This shortage has given Western Digital significant pricing power, allowing it to negotiate higher prices with customers, evidenced by a 9% year-over-year price increase last quarter.

Management reports that 89% of revenue now comes from the cloud segment, which serves hyperscalers and cloud service providers. This segment is highly profitable because the higher-capacity drives sold for AI data centers carry fatter margins. The company has secured this advantage by signing new long-term supply agreements with customers at these higher prices.

CEO Irving Tan highlighted that the shift from AI training to inference applications is a key inflection point, generating more data and consequently increasing the need for storage. Customers are so concerned about supply that they are placing orders a year in advance, with some orders already secured for 2028.

This isn't a short-term spike. Western Digital estimates the AI and cloud storage market will grow at a compound annual rate of over 25% through 2030. The HDD shortage, a primary engine of their growth and pricing power, could extend into the same period, making the current favorable conditions structural rather than cyclical.

The financial implications are substantial. The company is on track to deliver $9.90 in earnings per share for fiscal 2026. More importantly, analyst projections suggest earnings could cross the $25 per share mark within the next couple of years. Management itself has hinted that earnings could surpass $20 per share in the next three to five years.

This sets up significant potential upside for the stock. If Western Digital hits $25.05 in EPS by fiscal 2028 and trades at a market-average multiple of 34 times earnings, its stock price could reach around $851. This represents a potential 81% gain from current levels.

For investors, the current valuation of 29 times earnings is considered attractive, especially for a company in the midst of such powerful, AI-fueled growth. It provides what the market sees as a reasonable entry point to capture future gains. The story matters because it shows a legacy hardware company successfully reinventing itself as a critical enabler of the AI revolution, with a clear path to sustained profitability.