Western Digital’s (NASDAQ: WDC) strong Q2 2025 results have propelled its stock upward, fueled by record-breaking nearline shipments and the widespread adoption of UltraSMR (shingled magnetic recording) technology. As of February 14, the stock has surged 10% year-to-date, significantly outperforming the S&P 500’s 4% gain. This growth is largely driven by rising demand for AI-powered storage solutions, positioning Western Digital as a key beneficiary. In comparison, its competitor, Seagate stock (NASDAQ: STX), has climbed 16% over the same period.
Western Digital’s Q2 2025 (ending December 27) delivered impressive financial results, with revenue surging 41% year-over-year (y-o-y) to $4.3 billion, driven by higher HDD, SSD, and Flash sales. Cloud-related revenue accounted for 55% of total sales, reaching $2.3 billion and more than doubling y-o-y due to increased nearline HDD shipments. Client revenue rose 4% y-o-y, aided by higher average selling prices (ASPs) despite a decline in bit shipments. However, Consumer revenue dropped 8% y-o-y, impacted by lower HDD and Flash shipments as well as pricing pressures. The company’s gross margins saw significant expansion, rising to 35.4% from 16.2% a year earlier. Additionally, diluted earnings per share (EPS) came in at $1.77 for Q2 2025, a notable improvement from a $0.93 loss in Q2 2024. Adjusted EPS was $1.77, compared to ($0.75) in the prior-year period.
Western Digital’s stock performance over the past four years has been inconsistent, with returns showing considerable volatility compared to the S&P 500. The stock delivered an 18% gain in 2021, declined by 52% in 2022, rebounded with a 66% gain in 2023, and rose 14% in 2024. In contrast, the Trefis High Quality Portfolio, comprising 30 stocks, has demonstrated more stability while outperforming the S&P 500 over the same period. The reason? High Quality Portfolio stocks tend to offer superior returns with reduced risk, avoiding the volatility seen in broader market movements. More details are available in the HQ Portfolio performance metrics.
We have adjusted Western Digital’s valuation to $76 per share, based on an expected EPS of $5.82 and a 13.1x price-to-earnings multiple for fiscal 2025. This valuation represents a nearly 13% premium over the current market price (as of February 14). Furthermore, our analysis of Western Digital’s revenue provides insights into the company’s key income streams. We believe the AI-driven demand for storage solutions has not yet been fully priced into WDC stock. Notably, analysts’ average price target of $84 suggests a potential 25% upside, indicating room for further growth.
Western Digital is preparing to finalize the separation of its Flash and HDD businesses in fiscal Q3 2025, with the process expected to conclude on February 21, 2025. Looking ahead, the company projects Q3 revenue between $3.75 billion and $3.95 billion, with gross margins expected to range from 31.5% to 33.5%. However, operating expenses are projected to rise to between $700 million and $720 million due to one-time separation costs.
By segment, the Flash business is expected to see a mid-teens percentage revenue decline in Q3, primarily due to lower ASPs, increased cost per bit, and underutilization charges of $20 million to $30 million. Bit shipments are also forecasted to decline by a mid-single-digit percentage. Meanwhile, the HDD segment is projected to experience a mid-to-high single-digit percentage revenue decline, although its gross margin is anticipated to improve by approximately 50 basis points as average selling prices increase.
Although WDC stock appears positioned for further gains, it is useful to compare how Western Digital’s competitorsstack up across key financial metrics. Explore additional cross-industry comparisons at Peer Comparisons.
Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates