Western Digital Beat Earnings by a Mile — and the Stock Still Fell: Revenue Up 55%, Guidance Smashed

Western Digital beat earnings by a wide margin — and its stock still fell

Western Digital (NASDAQ: WDC) reported fiscal first-quarter 2027 earnings after the close on Thursday, October 22, 2026, that beat Wall Street on every major line: revenue surged 55% year over year to $4.38 billion, adjusted earnings reached $4.64 a share against the $4.11 analysts expected, and second-quarter guidance came in far above forecasts. Yet the shares, already down 6.4% in regular trading to close at $354.19, swung in after-hours trading and were down sharply in Barron's late check — a sign that on a brutal day for the artificial-intelligence trade, even a clean beat was not enough.

What happened

Western Digital, which now reports as WD, makes the hard-disk drives that hyperscalers use to store the enormous volumes of data that AI both requires and produces. For the quarter ended October 2, 2026, the company posted revenue of $4.381 billion, up 55% from $2.818 billion a year earlier and ahead of the roughly $4.14 billion analysts had expected. Net income was $1.779 billion, or $4.63 a share on a GAAP basis, up from $1.15 billion, or $3.07 a share, a year ago. Adjusted earnings of $4.64 a share rose 161% year over year.

The margin story was just as strong. Non-GAAP gross margin expanded to 58.1%, from 54.4% in the previous quarter, and non-GAAP operating margin reached 49.1%. Cash flow from operations was $1.60 billion, with free cash flow of $1.38 billion. Chief Executive Irving Tan credited robust customer demand and disciplined execution, while Chief Financial Officer Kris Sennesael pointed to robust exabyte growth and improved pricing. The company also raised its quarterly dividend 17% to $0.175 a share, payable December 17 to shareholders of record on December 4.

Why it's blowing up

The puzzle is the stock reaction, and it is the same puzzle that ran through Thursday's whole session. The Nasdaq Composite fell 2.6%, the S&P 500 dropped 1.2%, and the Philadelphia Semiconductor Index sank about 6.7% as investors recoiled from the scale of AI spending commitments disclosed in this week's big-tech earnings. Western Digital was caught in that downdraft before it even reported: the stock fell 6.4% in regular trading and, according to Barron's, dropped a further 6.6% to $330.71 after hours, leaving it down 53% from its all-time closing high on June 18 — after an early after-hours pop of about 2% faded.

Barron's captured the tension: investors wanted widening profits and an optimistic outlook to ease concerns that the hard-drive boom has plateaued, and they got both — but the strong results were not enough to overcome a faltering AI trade. Hard drives are a notoriously cyclical business, and Western Digital and Seagate Technology are the only U.S. producers, so every quarter becomes a referendum on whether AI data-center demand can keep pushing prices and margins higher.

Key facts

The beat: fiscal Q1 2027 revenue of $4.38 billion, up 55% year over year, versus about $4.14 billion expected; adjusted EPS of $4.64 versus the $4.11 FactSet consensus.
The margins: non-GAAP gross margin of 58.1%, up from 54.4% last quarter, and non-GAAP operating margin of 49.1%; operating cash flow of $1.60 billion and free cash flow of $1.38 billion.
The guidance: fiscal Q2 revenue of $5.0–$5.2 billion (about $5.1 billion at the midpoint) versus $4.57 billion expected, adjusted EPS of $5.60–$6.00 versus $4.84 expected, and gross margin expanding to 60–61%.
The dividend: quarterly dividend raised 17% to $0.175 a share, payable December 17 to holders of record December 4.
The stock: closed down 6.4% at $354.19 on October 22, swung after hours — up about 2% early, then down 6.6% to $330.71 in Barron's late check — and sits 53% below its June 18 all-time closing high.
The backdrop: the Nasdaq fell 2.6% and the semiconductor index about 6.7% on Thursday as AI spending fears hit the whole complex.

What's next

The next test is whether Western Digital can deliver the guided step-up: roughly $5.1 billion of revenue and 60–61% gross margins in the fiscal second quarter would be fresh evidence that hard-drive pricing power is still rising rather than plateauing. Investors will also watch Seagate's results and the rest of big-tech earnings for confirmation that AI infrastructure spending — the demand engine behind every one of these numbers — is intact after Thursday's sell-off. Thursday's report itself was unambiguous: demand, pricing, and margins all moved the right way at once. What moved the other way was the market's mood. This report describes what happened and why markets reacted; it is not a recommendation to buy, sell, or hold any security.

Sources

FAQ

Why did Western Digital stock fall after beating earnings?

The beat landed in the middle of a broad AI-trade sell-off — the Nasdaq fell 2.6% and chip stocks about 6.7% on October 22. Barron's reported the shares down a further 6.6% after hours despite the beat and raised guidance.

How much did Western Digital earn in fiscal Q1 2027?

Revenue was $4.38 billion, up 55% year over year. Adjusted earnings were $4.64 a share, beating the $4.11 analysts expected, and GAAP net income was $1.779 billion.

What did Western Digital guide for the next quarter?

The company guided fiscal Q2 revenue to $5.0–$5.2 billion and adjusted EPS to $5.60–$6.00, both well above analyst estimates, with gross margin expected to expand to 60–61%.

Did Western Digital raise its dividend?

Yes. The quarterly dividend rose 17% to $0.175 a share, payable December 17, 2026, to shareholders of record on December 4.