Western Digital (WDC) has put up another big quarter, with Q2 2026 revenue at US$3.0b and basic EPS of US$5.27, backed by trailing twelve month revenue of US$10.7b and EPS of US$11.40 that reflect a very large year over year earnings swing. Over recent quarters, the company has seen revenue move from US$2.2b in Q1 2025 to US$3.0b in Q2 2026, while basic EPS has shifted from US$0.43 to US$5.27. This sets up a story where higher reported profitability, supported by a 36.8% trailing net margin that includes a sizeable one off gain, is front and center for investors weighing the quality and durability of these results.

See our full analysis for Western Digital.

With the headline numbers on the table, the next step is to see how this earnings profile lines up with the key bullish and bearish narratives investors follow around Western Digital, and where the latest results start to challenge those views.

Margins Inflated by One Off Gain

• Trailing net margin is 36.8% versus 4.4% a year ago, and includes a US$984.0m one off gain that has a major impact on the reported profitability picture.
• Bulls talk about long term margin expansion as AI driven storage demand grows, yet this margin jump leans heavily on a non recurring gain, which means:
  • The bullish view of structurally stronger net margins sits alongside earnings that are temporarily lifted by the US$984.0m item.
  • Forecast earnings growth of about 8.6% per year is much lower than the very large trailing earnings swing, so the bullish case rests more on future demand than on the current 36.8% margin.

Over the last year, bulls argue Western Digital’s margin story is just getting started. However, this result is heavily shaped by that US$984.0m boost, so it is worth reading their full argument in context before leaning on it too much 🐂 Western Digital Bull Case.

Revenue Growth Versus Earnings Forecasts

• Revenue is forecast to grow about 19.5% per year, while earnings are forecast to grow about 8.6% per year, so sales expectations sit well ahead of profit growth in the current models.
• Consensus narrative points to strong demand from hyperscalers and AI related storage, yet the lower earnings growth forecast compared with revenue suggests:
  • Analysts see room for higher volumes, but also expect margins to move down from the current 36.8% level toward lower long term levels.
  • The gap between revenue and earnings growth means higher sales alone may not automatically translate into equally strong profit growth if costs or pricing offset part of the top line gains.

Premium P/E With Big DCF Gap

• Western Digital trades on a P/E of 37.1x compared with a Global Tech average of 23.8x and peer average of 29.4x, while the share price of US$431.52 sits well below a DCF fair value of about US$1,059.39 in this dataset.
• Bears highlight the rich P/E as a key concern, but the valuation data also shows a very large gap to DCF fair value, which means:
  • The bearish view that the stock is expensive on earnings multiples is supported by the 37.1x P/E premium to industry and peers.
  • At the same time, a DCF fair value more than double the current price challenges the idea that the valuation is stretched on every measure, and shows how sensitive conclusions are to the cash flow assumptions behind each model.

Skeptics focus on that 37.1x P/E, but the wide spread to DCF fair value gives plenty for the cautious camp to unpack further 🐻 Western Digital Bear Case

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Western Digital on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

With both risks and rewards in play, the real question is how this mix lines up with your own tolerance and time horizon. Take a close look at the data and pressure test the bullish and bearish arguments against your expectations, then round out your view by weighing 3 key rewards and 2 important warning signs

See What Else Is Out There

Western Digital’s earnings picture leans on a US$984.0m one off gain and a premium 37.1x P/E, while profit growth forecasts trail revenue expectations.

If you are uneasy about paying up for a stock where reported margins and earnings rely on non recurring items, it is worth checking companies in the 51 high quality undervalued stocks.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.