Updated Aug 11 at 5:05pm ET.
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Western Digital shares dropped about 11 percent following its latest financial results. Even though the company beat analyst expectations for the quarter, its forecast for future profit margins came in lower than what its primary competitor, Seagate, recently reported.
Gross margin is a measure of how much profit a company keeps after paying for the direct costs of making its hard drives. The company expects these margins to reach about 55.5 percent next quarter. While this is an improvement over the previous quarter, it fell short of the higher bar set by its rival. For long-term owners, this is a reminder that even during a period of high demand for AI storage, the company still faces stiff competition that can affect its pricing power.
Source: Proactive Investors
The company reported quarterly earnings of $3.56 per share, beating the $3.31 analysts expected. Revenue hit $3.75 billion, a 44 percent jump from last year. This growth is being driven by data centers buying high-capacity hard drives to store the massive amounts of information needed for artificial intelligence. Gross margin, which measures how much profit is left after making the hardware, reached 54.4 percent, well above the company's 50 percent target.
Looking ahead, management expects revenue to grow between 42 and 49 percent next quarter. Even though the stock fell about 5 percent today, the underlying business is performing exactly as needed. It is successfully moving away from being a low-margin parts maker and into a specialized provider for the AI era. As long as data centers keep needing cheap, massive storage, the company's high-capacity drives should continue to command these higher profits.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Morgan Stanley listed the company as one of seven stocks to buy after a broad decline in the semiconductor and AI infrastructure market. They argue that the recent drop in price has created a favorable entry point for long-term owners.
This call highlights that while the market for memory and storage can be volatile, the underlying need for AI hardware remains intact. For a company like Western Digital, which is focused on the high-capacity drives needed for AI, these temporary price drops often have more to do with market jitters than the actual health of the business.
Western Digital's facilities in Malaysia received recognition for advancing sustainable data infrastructure. The company is focusing on building high-capacity drives that require less physical space and power to operate. While this is a routine corporate milestone, it matters because energy consumption is one of the biggest costs for data center customers. Drives that can store more data while using less electricity help the company keep its products competitive as AI workloads grow more demanding.
Source: Business Wire
UBS raised its target price for the company to $560, up from its previous target of $375. This change reflects a more optimistic view of what the stock is worth as the company focuses on high-capacity hard drives for data centers.
While the new target is higher, it is still below the average analyst target of $641. This suggests that while UBS sees more room for the stock to grow, it is slightly more cautious than many of its peers about how much the company can earn from the current surge in storage demand.
Source: UBS
Analysts adjusted their price targets following the company's recent earnings report. Most analysts, 44 of 61, rate the stock a buy, and the average target of $648 suggests a 48% increase from the current price.
The company has cleared the bar set by analysts for eight straight quarters. Management has a clear track record of setting targets they can beat, even as they manage a massive 44 percent jump in revenue.
| Expectation | |
|---|---|
| EPS | $3.76 |
| Revenue | $4.13B |
Seeking Alpha · Opinion · Aug 11
Seeking Alpha · Opinion · Aug 11
Proactive Investors · Aug 6
Investopedia · Aug 6
Proactive Investors · Aug 6
Reuters · Aug 6
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