WDCC

TD Cowen analyst Krish Sankar kept a Buy rating on Western Digital (WDC) but cut his price target to a Street-low $430 from $540 despite the company's strong Q1 FY27 results. His revised target still implies 21.4% upside potential. Sankar sees further room for WDC stock to rise as demand for hard disk drives (HDDs) remains strong and supply growth lags demand.

His $430 target uses a lower 15x earnings multiple (20x earlier) as the firm plans to raise capital spending and boost production. Still, Sankar believes longer-lasting price gains could offset that cut.

Sankar is a five-star analyst on TipRanks, ranking #15 out of 12,536 analysts tracked. He has a 65% success rate and an average return per rating of 52.70%.

WDC Earnings Beat Street Estimates

WDC reported Q1 FY27 earnings per share (EPS) of $4.64, beating analysts' estimate of $4.11. Revenue rose 55.3% year-over-year to $4.38 billion, topping estimates of $4.14 billion.

Sankar noted that WDC gave an EPS outlook of $5.80 for Q2 FY27, about 20% above the $4.80 Wall Street had expected. The forecast also points to gross margins of 60% to 61%, which he sees as a sign of strong pricing power.

The firm's outlook implies a high-single-digit rise in average selling prices (ASPs) for the next quarter, with prices up 36% year over year. This follows a 9% rise from the September quarter. Sankar also noted that most of the next quarter's shipments are covered by long-term deals, which have not stopped WDC from raising prices.

Higher Spending, but Demand Still Leads

WDC plans to raise capital spending over the next two years to meet rising demand. Sankar sees spending rising from about $750 million in 2026 to $1.8 billion in 2027 and $2.3 billion in 2028.

This could lift exabyte supply growth from about 26% in 2026 to 30%–35% in 2027 and 2028. Even so, Sankar sees total demand growth for nearline HDDs and enterprise solid-state drives (SSDs) at 40%–50% next year. Even with more supply from WDC, Toshiba, and Seagate (STX), industry supply may still fall short of demand, added Sankar.

Why HDD Prices Could Keep Rising

Sankar sees a key edge for HDD makers, as their drives cost far less per terabyte than NAND-based storage. He expects HDDs to remain 20 to 25 times cheaper per terabyte next year.

As a result, cloud firms can still save money by using HDDs, even if WDC raises prices. Sankar puts the saving at about $500 million for each exabyte moved from NAND to HDDs. He sees WDC earning $29 EPS in 2027, based on 30% drive growth and 16% price gains.

Is WDC a Strong Buy?

On TipRanks, WDC has a Strong Buy consensus rating based on 14 Buys and three Hold ratings. The average Western Digital price target of $649.56 implies 83.4% upside potential from current levels. Year-to-date, WDC shares have surged 105.8%.