The Western Digital story

What drives the business

• Western Digital completed the separation of its Flash business into Sandisk Corporation in February 2025, leaving a business focused on hard disk drives whose subsequent consolidated results exclude Sandisk.
• Its core Cloud products are high-capacity enterprise drives for data centers and storage systems, where reliability, capacity and cost of ownership shape customer demand.
• Client products serve desktop and notebook manufacturers and channel customers, while Consumer products include external storage offered through retail and channel partners.
• In the quarter to July 2026, Cloud accounted for 89% of net revenue, and the top 10 customers accounted for 73%, with three customers each representing 10% or more.
• Revenue reached $3.75 billion in the quarter to July 2026, up 44% from a year earlier, while GAAP operating margin rose to 41.7% from 26.1%.

What the price assumes

At $411.04 per share, the reverse DCF implies that free cash flow after stock pay grows 19.2% a year for ten years, using a 10.3% discount rate.

Western Digital delivered 80.6% annual growth on that measure over the last 2 fiscal years, while the TenQ check sets a 42.3% bar by slowing that record halfway toward 4%, so the implied growth rate passes that check.

The 2.4% free cash flow yield nevertheless falls below its historical 6.0% comparison and the TenQ cash yield threshold of 3.0%.

Value WDC on your own assumptions

What could change the story

• The concentration in Cloud and a small group of large customers makes changes in their storage spending or purchasing behavior especially consequential.
• Generative AI could change storage needs unpredictably, while storage optimization techniques and substitute products could reduce demand or make earlier investments less effective.
• Long-term customer agreements can lock Western Digital into predetermined prices when market conditions improve, and missed obligations can bring financial penalties or damage customer relationships.
• Reported profit includes gains on the retained Sandisk interest that do not reflect storage operations, and the TenQ cash conversion check registers 0.42 against a 0.80 bar.
• Cash and short-term investments of $1.6 billion exceed total debt of $1.1 billion, but the near-term liquidity check falls short at 1.33 against 1.50.

What to watch next

• For the fiscal first quarter of 2027, management expects revenue of $4.1 billion plus or minus $100 million, representing growth of 42% to 49% from a year earlier.
• Its profitability guidance calls for non-GAAP gross margin of 55% to 56% and non-GAAP diluted earnings per share of $4.00 plus or minus $0.15, compared with 54.4% and $3.56 in the quarter to July 2026.
• Free cash flow relative to the $1.28 billion generated in the quarter to July 2026, alongside customer concentration, provides a check on whether cloud demand continues to translate into cash.
• The announced redemption of the 3.00% convertible senior notes due 2028 is scheduled for November 16, 2026, with conversions and the resulting share count relevant to future per-share results.

Sources

• Western Digital's earnings release, filed with the SEC
• Its latest 10-Q or 10-K, for the risk factors
• The WDC stock report, for every figure and check