Western Digital Corp. (NASDAQ:WDC) is entering a stronger growth phase as rising data-center storage demand, higher pricing and next-generation HDD technologies support its revenue, margins and cash generation.

S&P Global sees Western Digital benefiting from strong hard-disk-drive demand, AI-related storage needs and improving pricing, which it expects to drive rapid revenue, margin and cash-flow growth through fiscal 2028.

The ratings firm revised its outlook on Western Digital to positive from stable and affirmed its ‘BBB-’ issuer credit rating, citing stronger cash generation and low leverage.

AI Storage Demand Supports Revenue Growth

S&P Global said on Thursday that rising storage requirements for AI training, inference and AI-generated data are strengthening HDD demand.

Western Digital’s revenue grew nearly 36% in fiscal 2026, while its EBITDA margin expanded by 1,150 basis points.

S&P Global expects revenue to increase about 44% in fiscal 2027, followed by another 30% in fiscal 2028.

It projects roughly 1,000 basis points of EBITDA margin expansion in fiscal 2027, supported by stronger demand, price increases, operating leverage and adoption of technologies including UltraSMR and ePMR.

S&P Global also expects Western Digital’s progress qualifying its next-generation heat-assisted magnetic recording, or HAMR, technology to support future growth and margin improvement.

Free Cash Flow Could Reach $5 Billion

S&P Global expects Western Digital to increase capital spending as it invests in recording heads, media, automation and its transition to HAMR.

Despite those investments, it projects free cash flow will rise to about $5 billion in fiscal 2027, compared with $3.5 billion in fiscal 2026 and $1.2 billion in fiscal 2025.

The firm expects Western Digital to maintain a net cash or near-net cash position while returning meaningful capital to shareholders through dividends and share repurchases.

Low Leverage Supports Credit Profile

S&P Global expects leverage to remain low and sees limited risk of a transformational acquisition because of the concentrated structure of the HDD industry.

The ratings firm said Western Digital’s conservative balance sheet should also cushion the effect of future industry downturns.

Still, customer concentration remains a risk. Western Digital’s three largest customers represented 16%, 15% and 13% of fiscal 2026 revenue, while data center storage generated 89% of revenue.

S&P Global said the industry’s shift toward build-to-order sales should improve revenue visibility and reduce some earnings and cash-flow volatility. HDDs also continue to maintain a cost-per-bit advantage over NAND storage.

What Could Change The Rating

S&P Global could consider an upgrade if free cash flow rises to $5 billion-$6 billion and continues expanding, gross margins show lasting improvement, SSDs do not materially displace HDD demand, Western Digital maintains its technology position and leverage stays low.

Conversely, the firm could return the outlook to stable if weaker AI or traditional IT spending creates HDD oversupply, free cash flow falls short of expectations or an acquisition weakens the balance sheet enough to push expected net leverage above 1.5 times.

Top ETF Exposure

• Alger Concentrated Equity ETF (NYSE:CNEQ): 4.03% Weight
• Invesco Dorsey Wright Technology Momentum ETF (NASDAQ:PTF): 3.84% Weight
• Alger 35 ETF (NYSE:ATFV): 5.49% Weight

Significance: Because WDC carries significant weight in these funds, any significant inflows or outflows for these ETFs will likely force automatic buying or selling of the stock.

Price Action

WDC Stock Price Activity: Western Digital shares were up 0.51% at $452.59 at the time of publication on Friday, according to Benzinga Pro data.

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