Key Highlights

  • Q3 revenue reached $3.34 billion, marking a 45% year-over-year increase and surpassing the $3.23 billion estimate.
  • Earnings per share totaled $2.72, representing a 97% year-over-year climb and exceeding the $2.36 forecast.
  • Gross margin reached 50.5%, reflecting a 1,040 basis point year-over-year expansion.
  • Cloud-related revenue accounted for 89% of total revenue at $3.0 billion, climbing 48% year over year.
  • TD Cowen elevated its price target from $325 to $500 while maintaining a Buy rating.

Western Digital (WDC) shares advanced 5.27% to $434.52 following the release of outstanding fiscal Q3 2026 results that substantially exceeded Wall Street projections across revenue and profitability metrics.


WDC Stock Card
Western Digital Corporation, WDC

The quarter delivered $3.34 billion in revenue, representing a 45% year-over-year gain and topping analyst projections of $3.23 billion. Earnings per share reached $2.72, a 97% year-over-year surge that comfortably beat the $2.36 consensus estimate.

Gross margin for the period stood at 50.5%, expanding 1,040 basis points year over year and 440 basis points sequentially. Operating income totaled $1.3 billion, reflecting a 106% year-over-year increase, with operating margin reaching 38.6%.

Cloud operations served as the primary growth catalyst. Cloud revenue totaled $3.0 billion, comprising 89% of overall revenue while expanding 48% year over year. Company leadership attributed the strength to increased demand for higher-capacity nearline products.

The company shipped 222 exabytes in total units, rising 34% year over year. This figure included 4.1 million EPMR drives spanning 118 exabytes, with capacity configurations reaching 32 terabytes.

Average selling prices increased 7% sequentially and 9% year over year during the March quarter. Pricing measured per terabyte climbed 9% year over year, bolstered by long-term customer contracts.

Free cash flow generated during the quarter totaled $978 million, yielding a 29% free cash flow margin. The company executed share repurchases of 2.9 million shares valued at $752 million alongside $43 million in dividend distributions.

Western Digital also announced a 20% dividend increase to $0.15 per share, scheduled for June 17, 2026 payment to shareholders of record as of June 5.

SanDisk Share Sale Eliminates Net Debt

The divestiture of 5.8 million SanDisk shares produced a $3.1 billion debt reduction. The company concluded the quarter with a net positive cash balance of $450 million while retaining 1.7 million SanDisk shares.

Since initiating its capital return program in fiscal 2025, Western Digital has distributed $2.2 billion to shareholders.

Regarding product development, 44-terabyte HAMR and 40-terabyte EPMR drives are currently undergoing customer qualification processes. HAMR technology is being evaluated by four customers, while 40-terabyte EPMR is with three customers. The company’s product roadmap extends capabilities beyond 100 terabytes.

UltraSMR technology has achieved adoption among the three largest customers, with two satisfying nearly all exabyte requirements through this solution. Management anticipates UltraSMR will represent approximately 60% of exabytes shipped by fiscal 2027.

Forward Outlook and Market Response

For the upcoming Q4, Western Digital provided revenue guidance of $3.65 billion, plus or minus $100 million, indicating roughly 40% year-over-year growth at the midpoint. Gross margin expectations range between 51% and 52%, with non-GAAP EPS projected at $3.25, plus or minus $0.15.

The Q4 guidance exceeded Street expectations by 18%, though shares experienced some after-hours pressure. TD Cowen attributed the modest pullback to somewhat slower gross margin expansion — 60–65% for the June quarter compared to 90% in March — relative to Seagate’s implied 80% trajectory.

TD Cowen elevated its price target from $325 to $500 while reaffirming its Buy rating. The firm forecasts $21 in calendar year 2027 EPS based on 8% year-over-year ASP growth assumptions.

Insider transaction data revealed $28.7 million in stock sales by company insiders, with zero purchases documented during the reporting period.