Argus reiterates Buy rating on Western Digital stock with $500 target

Western Digital reported March quarter revenue of $3.3 billion and EPS of $3.25, beating consensus EPS of $2.71, with June quarter revenue guided to $3.65 billion. Analyst sentiment remains constructive: Argus reiterated a Buy with a $500 target, while Cantor Fitzgerald raised its target to $660, Bernstein to $590, and UBS to $375. Mizuho flagged gross margins at 51.5% versus 48.6% consensus, and BofA cited a 436 bps quarter-over-quarter margin expansion, reinforcing the positive earnings and margin trajectory.

Analysis

The market is still underpricing how tight NAND/HDD supply can remain once hyperscaler demand and capex budgets reaccelerate in tandem. When margins inflect this sharply, the next leg is usually not just earnings upside but a broader repricing of inventory risk across the storage chain: component suppliers, contract manufacturers, and even adjacent memory names can see multiple expansion as customers pull forward orders to secure allocation. The biggest second-order effect is that competitors with weaker mix or less exposed enterprise exposure may be forced into irrational pricing discipline, which can keep the cycle elevated longer than consensus expects.

What matters from here is whether this is a one-quarter print or the start of a multi-quarter capacity bottleneck. If gross margin stays above ~50% for another two reporting periods, the market will likely start treating the name as a secular AI/storage beneficiary rather than a cyclical HDD recovery story, which supports a higher forward multiple. Conversely, any sign of customer digestion or pricing normalization would likely hit the stock hard because positioning is already crowded and the valuation has moved from cheap to execution-dependent.

The contrarian read is that the move may be partially overextended relative to near-term fundamentals, even if the medium-term thesis remains intact. A near-vertical rerating typically leaves little room for error, and the stock now trades as if both pricing and demand will stay hot into next year; that creates asymmetric downside if enterprise budgets slow or if channel inventory is rebuilt faster than expected. UBS being an explicit beneficiary in the article is also a reminder that some of the upside is already being monetized by secondary participants in the equity story rather than just by the operating company.

Key Decisions for Investors

• Maintain a tactical long WDC position for the next 1-2 quarters, but use strength to trim into any move above consensus-target momentum levels; upside remains, but the risk/reward is less attractive after the recent rerate.
• Buy WDC call spreads 1-3 months out instead of outright stock to capture continued positive revisions while limiting downside if storage pricing stalls; structure around modest further upside rather than a continued melt-up.
• Pair long WDC vs. short a weaker storage/semicap peer with less pricing power and weaker enterprise exposure over the next 1-2 quarters; the trade should benefit if the cycle stays tight and winners keep taking share.
• Watch for any margin or guidance inflection in the next earnings cycle; if gross margin guidance rolls over, exit quickly because this setup is vulnerable to a sharp multiple compression.
• If you want a lower-beta expression, own WDC on pullbacks below recent breakout levels and define risk tightly with a 7-10% stop, since the primary danger is not business deterioration but valuation de-rating after crowded longs.