WDC and Seagate Face a Margin Test as HDD Supply Expands

Western Digital and Seagate are approaching their next earnings reports with two competing facts in view. Their latest quarters showed unusually strong revenue growth and gross margins, while a reported production expansion by Toshiba has raised questions about how long current hard-drive pricing can hold.

Western Digital reported fiscal fourth-quarter revenue of $3.75 billion, up 44% from a year earlier, and a non-GAAP gross margin of 54.4%. The company guided to about $4.1 billion of revenue and a 55.5% non-GAAP gross margin at the midpoint for fiscal first-quarter 2027.

Seagate reported fiscal fourth-quarter revenue of roughly $3.6 billion. Its GAAP gross margin was 52.3% and non-GAAP gross margin was 52.7%. The company said fiscal 2026 revenue grew 34% and free cash flow reached a record $3.1 billion.

Those figures support the view that demand for high-capacity drives used in cloud and AI infrastructure is translating into better economics. The risk is that suppliers respond to those economics by adding capacity. Stocktwits cited a Nikkei report that Toshiba plans to double production capacity for AI data-center hard drives by fiscal 2027, backed by about $380 million of investment. That report is a competitive signal, not proof that industry pricing is about to collapse. New capacity takes time to qualify, and customer commitments can delay its effect.

Wells Fargo kept Overweight ratings on both companies while cutting its price targets. The target changes matter less than the assumptions behind them: durable revenue growth of 25% to 30% or more and a path toward gross margins of 60% to 65% or more. Those are demanding expectations after the recent run in profitability.

Investors should focus on three disclosures. First, whether cloud customers are locking in capacity for multiple quarters. Second, whether price increases are still exceeding cost inflation. Third, whether management sees Toshiba's expansion changing supply discipline. Strong reported margins establish the starting point, but the earnings calls will show whether that strength is becoming structural or simply attracting more competition.