Western Digital earnings: AI cloud demand lifts sales 55%, but shares slip

If you have priced an external hard drive this year, you have felt the AI boom in your wallet. The latest Western Digital earnings show where those drives are going. Released on Thursday 22 October, after the US market closed, the results show sales up 55% to US$4.38 billion for the three months to 2 October, driven by cloud companies storing AI data.

The numbers beat forecasts on almost every line. Yet the shares fell. That gap between a strong business and a nervous market is the real story, and it tells us something about where the AI trade stands right now.

Western Digital earnings: the cloud now buys almost everything

Analysts had expected about US$4.14 billion in revenue, according to TipRanks. Western Digital passed that comfortably. Cloud customers, the giant companies that run data centers, made up 88% of sales, about US$3.9 billion. Sales to PC and device makers (the “client” business) rose 119% to about US$320 million. Consumer drives, the kind you buy in a shop, brought in about US$193 million, roughly 5% of the total.

Profit grew faster than sales. Gross margin, the share of each sales dollar left after paying to make the product, was 58.1% on the company’s adjusted measure, up from 43.9% a year earlier. Adjusted earnings per share rose 161% to US$4.64, against about US$4.08 expected. The company shipped 248 exabytes of storage, up 22%. One exabyte is a million terabytes.

Chief executive Irving Tan said: “Fiscal 2027 is off to a strong start, with results exceeding expectations, driven by robust customer demand and disciplined execution.”

The company also raised its quarterly dividend 17%, from US$0.15 to US$0.175 a share, payable on 17 December. For next quarter it expects sales of US$5.1 billion, give or take US$100 million, and a gross margin of 60% to 61%. That is well above the roughly US$4.57 billion analysts had expected.

Why is Western Digital stock down after a beat?

Here is the twist. Western Digital stock had already fallen about 6.4% in regular trading on 22 October, closing at US$354.19, as AI and chip shares sold off. After the report, shares first rose about 4%, then turned lower during the call. They fell roughly 5% to 8% in after-hours trading, depending on the source and the time.

According to Investing.com and Yahoo Finance, managers spoke on the call about rising input costs and higher capital spending, the money spent on factories and equipment. No figure for that spending has been confirmed. Investors are also watching Toshiba, which plans to nearly double its data-center hard-drive capacity. More supply could cool prices later.

The demand comes from AI data center storage, where cloud firms keep the huge sets of data that AI systems learn from and create. Western Digital sells mostly high-capacity “nearline” drives, built to hold huge amounts of data cheaply. Earlier this year it said it was largely sold out for 2026. It also expects its next-generation HAMR drives, which use a tiny laser to pack more data onto each disk, to finish testing with two big cloud customers in early 2027.

What this means for your next hard drive

Consumer hard-drive prices have risen sharply in 2026, and this report gives no sign of quick relief. Shop buyers are only about 5% of Western Digital’s sales, so the cloud giants come first.

A few calm steps help. Buy only the space you need now. Compare the price per terabyte, not the box price. Check whether a cloud plan you already pay for has room to spare. And keep backing up anyway.

Cloud storage services run on these same drives. Whether their rising costs will one day show up in plan prices is our speculation; no provider has said so.

A strong business meets a market that already expected it

On balance, the business looks healthy. Margins are wider, cash is strong, with US$1.38 billion of free cash flow, and the forecast points up. The likelier reading of the share drop is not doubt about demand, but worry that the good news was already in the price.

The risks are real but ordinary for a boom: rising costs, new competitor supply and a delicate move to new drive technology. It is the same pattern we saw when TSMC posted another record quarter on AI demand while planning carefully for 2027.

The next test comes early in 2027, when the new drives should finish testing with cloud customers. If that lands on time, the company’s story holds, whatever the share price does on the night.