Western Digital's 970% AI Storage Rally: What's Next?
💡 Key Takeaway
Western Digital's explosive growth is real but the stock now prices in much of the near-term AI storage demand, requiring careful timing for new investments.
The AI Storage Revolution Nobody Saw Coming
Western Digital has transformed from a forgotten storage maker into an AI infrastructure powerhouse, with its stock surging 970% from April 2025 lows to recent highs above $300. The company hit a 52-week high of $307, making it the second-best S&P 500 performer in 2025 behind only its own spin-off, Sandisk.
This remarkable turnaround stems from AI's hidden storage problem. While everyone focuses on GPUs and fast memory, AI training generates enormous datasets that need cheap, scalable storage between sessions. Western Digital's hard drives have become the go-to solution for hyperscalers like AWS, Microsoft Azure, and Google Cloud.
The company reported fiscal Q2 2026 revenue of $2.655 billion while shipping 215 exabytes of storage. More importantly, gross margins expanded to 46.1%, and the company expects full-year revenue to roughly double to $12 billion. Western Digital has locked in procurement agreements with its top seven customers through 2026, with some extending into 2027-2028.
The February 2025 spin-off of Sandisk proved transformative. Both companies now trade independently, with Sandisk focusing on NAND flash while Western Digital concentrates on hard drives. This separation allowed the market to value each business appropriately, unlocking significant shareholder value.
Why This Storage Story Isn't Just Another Cycle
This matters because Western Digital has fundamentally transformed from a cyclical hardware company into an AI infrastructure provider. With 90% of revenue now coming from AI and cloud customers signing multi-year contracts, the business model has become more predictable and valuable than ever before.
The company's technology roadmap could redefine storage economics. Western Digital is betting on HAMR (Heat-Assisted Magnetic Recording) technology that could deliver 100TB drives by 2029. This would dramatically reduce data center costs by packing more storage into the same physical space while using less power.
However, significant risks remain. Seagate has already shipped over one million HAMR drives commercially and qualified them at Google, while Western Digital's HAMR production doesn't ramp until 2027. There's also the persistent threat of SSD technology becoming more power-efficient, which could challenge HDD dominance in power-constrained data centers.
Bobby Insight
Western Digital remains a compelling long-term AI infrastructure play but new investments should wait for better entry points.
The company's transformation into an AI storage leader with locked-in hyperscaler contracts is genuine, but the 970% rally leaves limited near-term upside. The 100TB HAMR roadmap and potential for AI data growth exceeding expectations provide long-term catalysts, but current valuation demands patience.
What This Means for Me
