Western Digital Posts Strong Q2 Growth, Bolsters Future with Long-Term Deals Amid AI Storage Surge
This analysis is based on the company's Q2 2026 earnings call and financial release.
SAN JOSE, Calif. – Data storage giant Western Digital (NASDAQ: WDC) reported a significant 25% jump in revenue for its fiscal second quarter, underscoring a strategic pivot towards securing predictable, long-term business even as the broader PC and consumer electronics market remains volatile. The results, released January 29, 2026, highlight the company's success in locking in major customers and advancing its high-margin technology portfolio.
Management pointed to a stable pricing environment and a 10% year-over-year reduction in cost per terabyte as key drivers behind an impressive incremental gross margin of approximately 75%. "We are seeing the structural value of our solutions reflected in our agreements," executives noted during the call, emphasizing that this margin level is sustainable.
A cornerstone of the quarter was the securing of firm purchase orders with its top seven customers for calendar 2026, complemented by long-term agreements extending with some partners through 2028. This move is seen as a direct response to industry-wide desires for supply chain predictability and reflects a shift away from purely transactional sales.
Technologically, the adoption of Ultra SMR (Shingled Magnetic Recording) drives both capacity and profitability. Now representing over half of the nearline hard drive portfolio, Ultra SMR offers a 20% density advantage over conventional CMR drives and boosts margins through its software-defined architecture.
Looking ahead, Western Digital is betting big on the AI wave. Company leadership explicitly linked the growing need for AI inference—the process of running trained models—to a sustained, long-term demand for high-capacity hard disk drives (HDDs). "The data generated for inference creates a massive, non-negotiable storage tailwind," the call transcript revealed, supporting the company's projection of exabyte growth in the low-20 percent range.
Meanwhile, the decade-long "Hammer" project—understood to be a next-generation memory or storage technology—continues its development. Investments are ongoing, but the company assured analysts that upon ramp-up, Hammer will be at least neutral to gross margins. Capital expenditure is expected to remain a modest 4-6% of revenue.
Market Voices: A Split Verdict
David Chen, Portfolio Manager at Horizon Capital: "The long-term agreements are a masterstroke. They de-risk the revenue stream and validate WD's tech leadership in a commoditized market. The margin story, especially with Ultra SMR, is compelling and underappreciated."
Rebecca Shaw, Senior Tech Analyst at Finley Insights: "The AI narrative is powerful, but let's not ignore the elephant in the room: consumer revenue is still a drag. This is a tale of two companies—one thriving in the enterprise and cloud, the other struggling to find footing in a weak PC market."
Michael Torrez, Independent Investor & Blogger: "A 75% incremental margin? That's borderline monopolistic. It screams of a lack of real competition in high-capacity drives. These 'long-term agreements' sound great until you realize they might be locking customers into high prices while costs are falling 10% a year. Where's the value sharing?"
Arisha Kapoor, Data Center Strategist at NexGen Advisory: "The Ultra SMR adoption rate is the real headline here. It shows the hyperscalers are all-in on density and TCO. For the data center build-out cycle, WD is becoming an indispensable, if quiet, enabler."
For the complete details, please refer to the official earnings release and full transcript on the Western Digital investor relations website.