Western Digital Stock Gains 8% Amid Key Developments

Overview

Western Digital Corp (WDC.US) has seen its shares rise by over 8%, reaching an all-time high, driven by two significant developments: the complete sell-out of its 2026 hard-disk-drive (HDD) production capacity and the accelerated sale of its remaining stake in SanDisk, valued at approximately $3 billion. These events highlight the company's strategic shift towards benefiting from the AI boom while undergoing a structural transformation.

HDD Production Capacity Fully Booked

Western Digital announced that its entire HDD production capacity for 2026 is fully booked, indicating strong demand from data-center operators and hyperscalers investing in AI infrastructure. Key takeaways include:

• Strong revenue visibility for upcoming quarters due to fully booked production.
• Long-term agreements (LTAs) expected to extend into 2027-2028, stabilizing volumes and margins.
• Revenue heavily reliant on the cloud/hyperscale segment, with minimal contribution from consumer sales.
• Despite competition from SSDs, HDDs remain essential for archiving large data sets, driven by AI demand for low-cost capacity.
• The company's forward P/E ratio has risen to around 34, reflecting its new positioning as an AI infrastructure player.

Sale of SanDisk Stake

In addition to the production news, Western Digital is expediting the monetization of its remaining SanDisk stake, valued at about $3.09 billion. The transaction details include:

• The offering price reflects a discount to the latest market close.
• The deal involves exchanging SanDisk shares for debt held by banks, followed by distribution to underwriters.
• Timing is crucial, as exiting the stake around the one-year anniversary of the SanDisk separation may have tax implications.
• Proceeds from the sale will benefit Western Digital directly, enhancing its balance sheet rather than raising capital for SanDisk.

Market Interpretation

The combination of these developments sends a clear message to the market:

• Operationally, Western Digital is capitalizing on the AI capital expenditure cycle and solidifying its role in the data infrastructure supply chain.
• Financially, the company is simplifying its structure post-spinoff, potentially reducing leverage and improving liquidity.
• Strategically, Western Digital is positioning itself as a key beneficiary of the AI data-center investment cycle.

Risks to Consider

While the outlook appears positive, several risks remain:

• Fully booked production does not guarantee margin expansion, as this depends on contract terms and production costs.
• The AI boom is cyclical; any slowdown in hyperscaler investments could negatively impact the outlook.
• A large sale of SanDisk shares could exert near-term supply pressure on its stock.
• Valuations in the AI infrastructure sector are high, making them sensitive to shifts in market sentiment.

Conclusion

Western Digital is leveraging AI-driven demand for its products while finalizing its SanDisk separation, which enhances its balance sheet ahead of the next capital expenditure cycle. This dual narrative of growth through AI storage demand and restructuring could significantly influence the stock's trajectory in the coming quarters.