The profit from a hard drive suddenly became like that of an AI chip.
Western Digital, a U.S.-based storage company, reported revenue of $3.747 billion in its latest FY2026 Q4 earnings press release. On a GAAP basis, earnings per share amounted to $8.21. According to the company’s announcement, the revaluation gain from its stake in SanDisk was also included in the income statement.
This creates two ways to interpret Western Digital’s results. First, its core HDD business, following the spin-off of its flash memory division, is selling more and becoming more profitable. Second, its retained stake in SanDisk fluctuates with market value, pushing GAAP profits to a level that doesn’t accurately reflect the performance of its HDD business.
This is not a quarterly spike.
Let’s start with the most basic question: Is this growth limited to just one quarter?
According to Western Digital’s FY2026 Q4 earnings press release and its prior Form 10-Q, the revenue trajectory from FY2025 Q4 to FY2026 Q4 showed no downward turn. Revenue rose steadily from $2.605 billion to $3.747 billion, forming a continuous upward trend across five consecutive actual quarters.
This line is worth connecting because the reporting口径 has changed. Western Digital completed the spin-off of its flash memory business in February 2025, and SanDisk is no longer included in continuing operations. The latest earnings press release has also restated prior comparable periods based on the HDD continuing operations口径. The growth shown on the chart is not the result of re-adding the SSD business, but rather reflects a purer expansion of the hard drive business.
According to the company’s earnings presentation on the same day, the cloud market accounted for 89% of Q4 revenue. This end-market label does not equate to AI revenue, but it indicates that Western Digital’s primary revenue focus is now on hyperscale cloud providers and cloud service providers. In this supply chain, hard drives do not provide computing power, but rather large-capacity data storage.
According to the company’s FY2026 Q4 earnings press release, the midpoint of the revenue guidance for FY2027 Q1 is $4.1 billion. For readers, the dashed line serves as a more important reminder than the solid line: guidance reflects the company’s current judgment and should not be treated as a guaranteed outcome for the next quarter.
Sell more and keep more profit
Larger revenue does not automatically mean better business. This is especially true in the hard drive industry, where during an upcycle, shipments, pricing, inventory, and capacity utilization all simultaneously appear on the income statement. What truly matters is how much remains from every $100 in revenue.
According to the company’s financial report, the GAAP gross margin for Q4 FY2026 reached 54.1%. In simpler terms, for every $100 worth of storage products sold, more than half remains after deducting direct manufacturing costs.
Compared to a year ago, approximately $13 more in gross profit is retained per $100 of revenue. Another operating margin curve in the chart also rises at a similar slope, indicating that R&D, sales, and administrative expenses have not consumed the additional gross profit.
You cannot simply attribute these two lines to a single product or a single customer. The earnings press release itself only informs the market that cloud and other data-intensive workloads are expanding, leading to increased demand for Western Digital’s products. It does not break out “AI” as an auditable revenue line item. What is clear is that revenue growth and margin expansion occurred simultaneously over five quarters, and the additional revenue has clearly flowed through to operating margins.
Cash flow adds an additional layer of validation for this improvement. Free cash flow for Q4 FY2026 was $1.281 billion, while operating cash flow, according to the company’s earnings press release, amounted to $1.389 billion. Hard drives remain a manufacturing business requiring equipment, materials, and inventory turnover—so cash flow keeping pace with profits provides further confirmation of this quarterly operating result. While it cannot alone prove that the trend will persist indefinitely, it offers a more accurate reflection of the actual funds a company can control than net income alone.
Where does EPS actually come from?
So why does GAAP earnings per share appear more impressive than the improvement in core operations? The answer lies in the last chart.
The GAAP net profit attributable to parent company shareholders for FY2026 Q4 is $3.195 billion. According to the company’s defined Non-GAAP measure, this figure is $1.382 billion. The difference is not due to an accounting error, but rather because the company excludes certain items from the Non-GAAP figure that it does not consider relevant for evaluating ongoing operating performance.
The largest item is $2.05 billion in SanDisk retained earnings, which stems from the market-value revaluation of SanDisk shares held by Western Digital, not from increased hard drive sales this quarter. The company also added back costs related to debt and equity transactions, and made adjustments for taxes, stock-based compensation, and restructuring items on the same reconciliation table.
This does not mean that Non-GAAP is the only "true profit." It remains a comparative metric defined by the company and should always be read alongside GAAP. Its value lies in separating changes in equity market value from operational performance generated by hard drive manufacturing and sales. Focusing solely on $8.21 may lead you to confuse two fundamentally different types of earnings as the same thing.
The most interesting aspect of Western Digital’s earnings report isn’t that a hard drive suddenly acquired a chip-like valuation narrative, but that, after spinning off its flash business, the core HDD segment’s revenue and profit margins have genuinely improved. While SanDisk’s equity stake makes GAAP profits appear brighter, once you look past it, the remaining hard drive business is no longer the same as it was in the previous cycle.