Beth Kindig

Damien Robbins

Royston Roche

I/O Fund

Knox Ridley

Below are our current positions and corresponding theses. In most cases, we have written about the stock many times. What is listed below are the most pertinent analysis for becoming acquainted with the stocks we currently hold. If you want to read more, please use our search bar by also ticking Pro in the filters and search by stock name to pull up more archived articles. 

This list will be updated and refreshed when positions are added or removed. Please check back often for updates!

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Nvidia Deep Dive Analysis: A Leader in AI Hardware and AI Software

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Nvidia Q2: Guidance for Q3 Saved the Day; $10T Market Cap Prediction Revisited 

Nvidia Q4: Range Bound and Looking for a Catalyst 

Nvidia Q3: Lackluster Quarter until Blackwell Arrives

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Astera Labs Q2: Blowout with double digit Beat/Raise; Emphasis on future growth 

Astera Labs Q4 Earnings: Strong Commentary for H2 Ramp; What It Could Mean 

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Bloom Energy Q3: Doubling Capacity in FY2026 for “4X 2025 Revenue”

Bloom Energy: First Direct Hyperscaler with Oracle; More are Likely to Follow 

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Cloudflare: Revenue Accelerates to >30%, Key Metrics Strengthen

Palantir Q4: Highest Growth As Public Company; US Commercial To Accelerate

Palantir Delivers One Of The Strongest Reports From Q3

Meta Q4 Earnings: A New Era Driven By AI Agents

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Below are our current positions and corresponding theses. In most cases, we have written about the stock many times. What is listed below are the most pertinent analysis for becoming acquainted with the stocks we currently hold. If you want to read more, please use our search bar and search by stock name to pull up more archived articles. 

Astera Labs Q3 Earnings: Blowout Report Meets UALink Uncertainty

Below are our current positions and corresponding theses. In most cases, we have written about the stock many times. What is listed below are the most pertinent analysis for becoming acquainted with the stocks we currently hold. If you want to read more, please use our search bar and search by stock name to pull up more archived articles.

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This week's webinar will cover the Broad Market, I/O Portfolio, and Bitcoin.

Broad Market Webinar Invitation - 04/02 @ 1:30 PM PST - Broad Market, I/O Portfolio, Bitcoin

As someone who looks at hundreds of earnings reports a year, there are times an earnings report shatters expectations like an Olympian breaking a record or an athlete leaving no doubt who is the best in the game. Micron did this by dropping an earnings report so strong on fundamentals that I cannot recollect seeing one quite like this. 

Micron blew the doors off with revenue growth of 196.3% YoY and up 75% QoQ for a beat of 22.3% on a massive revenue base of about $24 billion a quarter. The forward fiscal Q3 growth is eye-watering at 260.2% YoY and 40.4% QoQ. This is nearly 100 points higher than what analysts had slated for fiscal Q3 with consensus at 150.2% growth YoY. 

The $10.2 billion sequential increase is nearly unprecedented outside of Nvidia’s most recent quarter posting $11 billion QoQ growth – yet, let’s not forget that Nvidia is the world’s most valuable company.  

Here is what management stated about this record-breaking quarter:  

“Quarterly revenue nearly tripled versus one year ago, and revenue for DRAM, NAND, HBM (high-bandwidth memory) and each business unit reached new highs. Our fiscal Q3 single quarter revenue guidance exceeds the full year revenue for every year in our company’s history through fiscal 2024. For fiscal Q3, we anticipate exceptional records across revenue, gross margin, EPS and free cash flow.” 

To also help illustrate just how impressive this earnings report was, consider that Micron was not supposed to see $33 billion in a single quarter until FQ1 2028 (November of 2027) yet following a second quarter of $10B sequential growth, will now see this revenue in the quarter ending in May of 2026. 

As incredible as the revenue growth is; the margins are arguably even more incredible at an 81% gross margin and 76% operating margin guide for the next quarter.  

So, why would the market be selling the report after hours? Well, to be prudent, Micron was reporting a steep, negative gross margin of (9%) in FY2023 with one quarter as low as (32.7%) in FY23. Thus, the question of whether we are seeing a cyclical top or a structural shift in memory is a very valuable question to answer, and the importance of this broader question is only further reinforced by the results we saw this evening.

Supply Constraints and Product Road Map Combo Can Create Defensibility 

Although the market may be fatigued at hearing there are supply constraints, that dynamic is often what offers the highest level of defensibility for a supplier like Micron.  

Regarding AI memory, Micron stated they began volume shipments of HBM4 36GB (12-high) in 1H26 designed for Vera Rubin and they expect this to reach mature yields faster than HBM3e. Higher yields typically mean more sellable HBM per production run and typically support stronger margins. Additionally, Micron has sampled 48GB (16-high) HBM4 stack with HBM4e in development with a planned 2027 volume ramp, leveraging the 1y DRAM node in the product road map for sustained data center growth.  

On the earnings call, management emphasized that AI is trending toward more reasoning, longer context windows and agentic workflows – all of which require more DRAM capacity and bandwidth. As a result, GPUs and ASICs are expected to need increasing amounts of HBM plus DDR5/LPDDR to support training and inference.  

When it comes to HBM, management stated they expect to see robust growth at least through 2027: “And we continue to feel like we are in an extended space of robust industry demand that obviously, due to HBM being part of these numbers with its trade ratio is just stressing the entire industries and certainly our capabilities to be able to meet those demand numbers. So you're right. I mean, these numbers, at least in the foreseeable future are all supply limited numbers rather than the actual level -- true level of demand. So yes, I mean, that's sort of the environment we are in. We do expect that next year, again, we will have a fairly robust level of growth in calendar '27. But yes, we are not providing a long-term number beyond that commentary.” 

On storage, Micron will benefit from rising SSD share from vector databases and KV-cache offload (we’ve covered this in the past here). It’s clear from management commentary that they see no end in sight to the supply shortages on SSD: 

“And we continue to see those shortages for the foreseeable future. That has been another driver. So when we put all of these together, the NAND market is significantly undersupplied to the demand in the data center, and that demand continues to escalate in part driven by KV cache, but also driven by just the insatiable appetite that these AI servers have to have fast storage capability available as these systems get deployed more and more. And so the outlook is really strong. And as we have mentioned earlier, our portfolio is incredibly well positioned to continue to gain share in that space, including our KV cache applications, by the way, yes.” 

The company is in high-volume production of G9 NAND PCIe Gen6 data center SSDs and cited strong adoption of its 122TB SSD that “delivers 16 times the sequential read throughput per watt of a capacity-matched HDD configuration.” 

In the most recent earnings report, Micron saw share gains in SSD for its fourth consecutive year in 2025 with management stating that NAND revenue more than doubled sequentially in fiscal Q2 to a record. 

It was also confirmed that NAND demand significantly exceeds supply, which is fairly evident in the following pricing strength: “Fiscal Q2 NAND revenue was a record $5.0 billion, up 169% year-over-year, and represented 21% of Micron’s total revenue. Sequentially, NAND revenue increased 82%. NAND bit shipments increased in the low-single-digit percentage range. Prices increased in the high-70s percentage range driven by tight NAND industry conditions and included favorable mix.” 

Memory can be stubbornly cyclical, and the market appears to be discounting the familiar pattern Micron has faced in past cycles where peak shipments were followed by a sharp reversal ahead of pricing and demand normalizing. 

Management commentary supports Micron being in a sustained uptrend as 2026 is supply-constrained and greatly limited by DRAM and NAND supply. However, despite the outsized demand and strong product road map, Micron will likely see peak sales before Nvidia’s Vera Rubin sees peak sales given HBM and data center DRAM sits earlier in the supply chain. Therefore, there can be air pockets tied to Nvidia’s GPUs shipping in volume even when the overall trend remains intact.  

Micron is also exposed to PC/consumer and traditional server revenue.  

The CFO stated FY26 capex is raised to over $25B from previous estimates for $20B with some of the new fabs being greenfield sites. Although a glut of inventory is always on top-of-mind for a memory player that aggressively adds more capacity, there is likely more risk to Micron not seizing the opportunity to remain #2 with South Korea being particularly strong competitors. There are some facilities that are expansions yet many of these projects will not translate into meaningful revenue shipments until FY2028. 

In terms of if Micron could be adding more capacity at a peak, management felt confident this is not the case: “So we are very excited about that, and our supply is nowhere close to being able to meet the demand that we see for the foreseeable future.” 

The Shift to Strategic Customer Agreements (SCAs) 

Micron discussed shifting from long-term agreements to strategic customer agreements (SCAs): “We continue to work with customers on strategic customer agreements — or SCAs — that are different from prior LTAs (long-term agreements) and have specific commitments over a multi-year time horizon for improved visibility and stability in our business model. These SCAs also provide customers greater certainty to plan their businesses while reinforcing long‑term engagement across our broad product portfolio. We are excited to have signed our first five-year SCA.” 

If I had to point to one thing that could be causing the softer price action, it would be the read-through that SCAs could lead to a cap in pricing during a surge (like what we are seeing now in surging DRAM and NAND pricing).  

The upside to SCAs is they lock in supply and volume to smooth-out lumpiness in a cyclical industry yet could limit upside in exchange for that visibility. 

There were many questions on SCAs in the call – in fact, this topic dominated the Q&A session, here is one that encapsulates the concern around SCAs limiting upside in pricing yet also helping to remove the effects of a cyclical low, as well: 

“Sreekrishnan Sankarnarayanan 
TD Cowen 

Got it. Thanks for that, Mark. And then a quick question for Sanjay on the SCA. Congrats on your first 5-year SCA. How different is it from an LTA? Is this a multi-year volume and price commitment, or does the price get negotiated every year? And also, how to think about cancellation terms on the SCA in case the cycle slows down during the timeframe? 

Sanjay Mehrotra 
CEO, President & Chairman 

Thank you for recognizing us for the first SCA that we have completed here. And as you noted, SCA is multi-year agreement, and we noted that in our remarks as well. LTAs have tended to be typically 1-year agreement. And of course, in this environment of extremely tight supply outlook in the foreseeable timeframe as well, of course, our customers are very motivated in order for their own planning purposes and for their better predictability to have these structural strategic agreements with us. And of course, these agreements are really meant to bring stability and greater visibility into our business model as well. We have completed 1 SCA, so we are not going to be getting into the specifics here or these agreements. I'm sure you can appreciate that these SCAs are confidential in nature. But of course, these SCAs are meant to achieve the objectives for the customers in terms of their ability to plan and be able to count on supply commitments that are in the agreements, but also for us to be able to count on specific commitments that are there from the customers. And these are meant to go across the periods when the industry is very tight versus other parts of the industry environment as well. So that's why they're long-term agreements, and they have robust terms in them for us as well as for our customers.” 

The correct readthrough, if I had to guess, is that Micron is in the driver’s seat and is able to lengthen the LTA commitments to now 5-year terms for the company’s benefit.  

Micron’s Q2 FY2026 ending February revenue grew by an impressive 196.3% YoY and 74.9% QoQ to a record $23.9 billion, beating estimates by a solid 22.3%. Revenue growth accelerated by nearly 140 percentage points from 56.7% YoY and 20.6% QoQ growth in the previous quarter. The $10.2 billion sequential increase was the largest in the company’s history and was primarily driven by strong AI memory demand. 

Management also provided a strong FQ3 revenue guidance of $33.5 billion, implying a YoY growth of 260.2% and 40.4% QoQ. The revenue guidance beat consensus estimates by a stellar 44%. Analysts expect strong revenue growth to continue and expect FQ4 revenue to grow by 233.8% YoY to $37.77 billion. 

Micron’s FQ2 DRAM revenue grew by 207% YoY and 74% QoQ to a record $18.8 billion. Revenue growth accelerated by 138 percentage points from 69% YoY and 20% QoQ growth in the previous quarter. Bit shipments were up mid-single digits sequentially. Average selling prices increased in the mid-60s percentage range sequentially, driven by tight market conditions and also due to favorable mix.

FQ2 NAND revenue grew by 169% YoY and 82% QoQ to a record $5.0 billion. Revenue growth accelerated by 147 percentage points from 22% YoY growth in the previous quarter. NAND bit shipments increased in the low-single-digit percentage range sequentially. Average selling prices increased in the high-70s percentage range sequentially, driven by tight NAND market conditions and favorable mix. 

Micron’s Cloud Memory Business Unit (CMBU) FQ2 revenue grew by 163% YoY and 47% QoQ to a record $7.75 billion. Revenue growth accelerated by 63 percentage points from 100% YoY growth and 16% QoQ growth in the previous quarter. The strong sequential growth was primarily driven by an increase in prices and favorable mix. 

Core Data Center Business Unit (CDBU) FQ2 revenue grew by 211% YoY and 139% QoQ to a record $5.69 billion. Revenue growth accelerated sharply from 4% YoY and 51% QoQ growth in the previous quarter. The strong sequential growth was primarily driven by higher pricing and growth in bit shipments. 

Mobile and Client Business Unit (MCBU) FQ2 revenue grew by 245% YoY and 81% QoQ to a record of $7.71 billion. Revenue growth accelerated sharply from 63% YoY and 13% QoQ growth in the previous quarter. The strong sequential growth was driven by higher pricing, partially offset by lower bit shipments. 

Automotive and Embedded Business Unit (AEBU) FQ2 revenue grew by 162% YoY and 57% QoQ to a record $2.71 billion. Revenue growth accelerated sharply from 49% YoY and 20% QoQ growth in the previous quarter. The strong sequential growth was driven by higher pricing, partially offset by lower bit shipments. 

Micron guided for a gross margin of 81% for FQ3. The record gross margin was primarily driven by higher memory prices, cost controls, and favorable revenue mix. The margins are so high that an analyst expressed concerns that perhaps Micron’s customers would be upset by it. Management replied that the demand supply imbalance is leading to higher memory prices. Also, customers are recognizing the higher value as high performance memory helps in driving down costs and improves the overall AI performance.  

“And for my follow-up, Mark, I wanted to revisit this 81% gross margin guidance. I appreciate you're not giving a specific forward view. But what do you -- what has happened in kind of prior historical peaks where Micron's margins, I think, peaked in the low 60s, I believe, so what is the difference between the prior situations versus now?  

What have those kind of historical precedents indicated to you about how the trajectory of gross margins can be over the next several quarters? How do customers -- do customers start to react differently when they see these level of gross margins and what is a very, very important input into their AI silicon?”  

“Vivek, I would say that keep in mind that the industry is supply constrained. So -- and conditions will remain very tight, and that's beyond '26. So that certainly supports the near-term, medium-term pricing... We're investing in capacity, and we're also increasing R&D to continue to advance the technology and improve the value of memory. And we believe these will help with margins over time, and I think customers are recognizing that and entering into these agreements.” 

FQ2 gross profits grew by 499.2% YoY to $17.76 billion. Gross profit margin was 74.4%, an improvement of 37.6 percentage points YoY and up 18.4 percentage points sequentially. It beat the management guidance of 67%. The adjusted gross margin improved by 37 percentage points YoY and 18.1 percentage points sequentially to 74.9%. The strong gross margin was driven primarily by higher pricing, favorable mix, and cost controls. Management has guided further improvement of gross margin to 81% in the next quarter. 

FQ2 operating profits grew by 810% YoY to $16.14 billion. Operating margin came at 67.6%, an improvement of 45.6 percentage points YoY and 22.6 percentage points sequentially. It beat the management guidance of 58.7%. The adjusted operating margin improved by 44.1 percentage points YoY and 22 percentage points sequentially to 69% driven by operating leverage. Management has guided further improvement of operating margin to 76.2% and adjusted operating margin to 76.8% in the next quarter. 

FQ2 net income was $13.79 billion or 57.8% of revenue compared to $1.58 billion or 19.7% of revenue in the same period last year. Adjusted net income was $14.02 billion or 58.8% of revenue compared to $1.78 billion or 22.1% of revenue in the same period last year. 

Micron’s FQ2 GAAP EPS grew by 756% YoY to $12.07, beating estimates by 36.3%. Adjusted EPS grew by 682.1% YoY to $12.20, beating estimates by 36%, primarily driven by higher memory prices, cost controls, favorable revenue mix, and operating leverage. 

Management also provided a strong guide for the next quarter. GAAP EPS guide is $18.90, implying a YoY growth of 1025%. While the adjusted EPS guide is $19.15, implying a YoY growth of 902.6% YoY, beating estimates by 77.8%.

Micron’s strong profits are leading to higher cash flows. 

FQ2 operating cash flows grew by 202% YoY to $11.9 billion with an operating cash flow margin of 49.9% compared to 49% in the same period last year. 

FQ2 adjusted free cash flows grew by 705% YoY to $6.9 billion with an adjusted free cash flow margin of 28.9% compared to 10.6% in the same period last year. Capex grew by 61.3% YoY to $5.0 billion. For FQ3, management has guided a capex of $7.0 billion and expects adjusted free cash flows to roughly double sequentially.  

Cash and investments were $16.6 billion and debt of $10.14 billion compared to $12.02 billion and $11.76 billion in the previous quarter. Micron repurchased shares worth $350 million and also reduced debt by $1.6 billion in the recent quarter. 

Inventory increased marginally by 0.6% sequentially to $8.27 billion. 

Micron’s record-breaking fundamentals are going far beyond what this company has reported before during previous peaks as the “normal” memory swings are being eclipsed by AI-era capacity scarcity.  

The difference between the AI cycle and the cyclical peaks in the past is that Micron is combining record fundamentals with improving visibility through multi-year customer agreements and a strengthening product roadmap (HBM4/HBM4E, 1γ DRAM, Gen6 SSDs). 

Management repeatedly stated the market is supply constrained beyond 2026, with new fabs coming online in 2028. Meanwhile, longer context windows, reasoning, and agentic workloads will keep HBM and DRAM demand elevated. NAND is proving it's no longer an afterthought with historic pricing surges that are causing heavyweight customers to seek more stability with SCA agreements.  

While I do believe SCAs could be the reason for softer price action, it’s my conclusion at this time that memory remains an important strategic asset that results in Micron being in the driver’s seat during a sustained upward trend, albeit with the occasional lumpiness inherent to supply chains. In that sense, I foresee Micron becoming more secular than the market has historically treated it.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in MU at the time of writing and may own stocks pictured in the charts.

Broadcom Fiscal Q1: $100 Billion+ in AI Chip Revenue in 2027

Nvidia Q4: Stellar Report; Stock Remains Range Bound

Alphabet Q4: Cloud Sees 14 Point Acceleration to 48% Growth, FY26 Capex to Nearly Double

As someone who looks at hundreds of earnings reports a year, there are times an earnings report shatters expectations like an Olympian breaking a record or an athlete leaving no doubt who is the best in the game. Micron did this by dropping an earnings report so strong on fundamentals that I cannot recollect seeing one quite like this. Micron blew the doors off with revenue growth of 196.3% YoY and up 75% QoQ for a beat of 22.3% on a massive revenue base of about $24 billion a quarter. The forward fiscal Q3 growth is eye-watering at 260.2% YoY and 40.4% QoQ. This is nearly 100 points higher than what analysts had slated for fiscal Q3 with consensus at 150.2% growth YoY.

Micron Fiscal Q2: Record-Breaking Fundamentals 

Data is the fuel for training and inference as it enables stronger models and better inference results. As more data is generated and the value of data increases, the demand for storing data is also increasing quickly.  

There are a few ways that Western Digital can awaken an age-old industry to meet the demands of hyperscalers. The first is to increase areal density from 32TB to eventually 100TB as we end the decade. By packing more capacity into the same footprint, Western Digital delivers improved economics to alleviate surging capex. The company’s UltraSMR-enabled JBOD platforms offer TB per drive, lower cost per TB and lower power (and space) per TB, delivering not only increased capacity but also lower total cost of ownership.  

The company seeks to work with a larger customer base beyond hyperscalers by not just saying “go figure out SMR” on your own to enterprises. SMR stands for shingled magnetic recording (more on this below). There are barriers to adoption for SMR as it’s complex to integrate and can have unpredictable performance at times. Western Digital is planning for when AI broadens beyond hyperscalers by offering a validated JBOD platform that tests and tunes UltraSMR, offers predictability through controlled reference architecture, and that is also quick to deploy.  

When translating UltraSMR’s benefits in investor terms, management states it offers a 20% capacity lift over CMR (conventional magnetic recording) and a 10% capacity uplift over industry standard SMR. The UltraSMR solution is software-based, thus it’s “very accretive” from a margin standpoint. Last quarter, there was a 50% mix on UltraSMR with expectations this will increase as the company’s top three customers are onboard with UltraSMR drives today and another two to three are moving toward adopting UltraSMR. 

Looking beyond the recording format, HAMR is an important catalyst for Western Digital as it’s a new write technology that uses a tiny laser to briefly heat the disk surface to write onto higher-stability media at much higher densities. This means WDC can pack more data onto the same drive size to deliver higher capacity. The step-function upgrade to increase capacity is a key element to Western Digital’s future product road map. Overall, HAMR is a primary capacity lever that will lead to 100TB hard drives along with combining higher bits-per-platter and higher platter count.  

The analysis below is dense at times, yet a necessary step to discussing a stock that has seen returns of 591% over the past year.  

Multimodal datasets are among the largest drivers of incremental storage demand. As inference and physical AI scale, the low-cost and high-density of HDD economics are hard to beat. Video is a data hog that and even modest growth here from multimodal AI can create what’s called “data exhaust.”  

As you'll see below, HDD is the lowest cost per TB for bulk storage. As inference requires more exabytes to be stored, HDDs offer an advantage in that storage tier. In fact, Western Digital’s management team foresees a CAGR of 25%+ over the next 5 years with HDD representing “80% of the storage media that deployed within a hyperscale environment.” 

To answer this incoming demand, Western Digital’s ePMR tech (energy-assisted Perpendicular MR) tech adds electrical currents to the write head to improve density and write smaller bits. This increase in areal density allows more data to be stored in smaller spaces, helping drive down costs per TB and improve TCO for customers. ePMR is a tried-and-true tech, with WDC noting that it has been the ‘workhorse of the industry’ for the last decade.  

WDC is currently shipping its ePMR-based drives in 26TB CMR (conventional magnetic recording) and 32TB UltraSMR (ultra shingled magnetic recording) configurations. It is also scaling to the world’s first 40TB UltraSMR later this year, a new product addition to its portfolio and a capacity that was previously thought to be impossible to reach with ePMR.  

UltraSMR also features technological and read channel optimizations that boost HDD capacity by up to 18% versus traditional CMR drives. A key enabler is Western Digital’s OptiNAND architecture, which integrates embedded NAND devices, enabling multiple active write zones and increasing track density per disk. WDC says its UltraSMR drives offer among the highest capacities per drive for data-intensive workloads, and consume as little as 5.5 watts of power when ideal, driving TCO lower. The UltraSMR drivers are also available in WDC’s JBOD hybrid storage platforms, integrating 60 to 102 drivers to offer up to 3.26PB of storage capacity. 

WDC is also moving into heat-assisted magnetic recording (HAMR) to scale to higher capacity drives, as ePMR tech is reaching its physical limits in areal density. This refers to how many bits can be packed onto each square inch of disk platter (where data is stored).  

Thus, future capacity gains must come from shrinking bit sizes further, which can be achieved via HAMR. HAMR uses a laser diode to heat a microscopic spot on the disk, enabling polarity of a single bit to be flipped to allow data to be written. This allows for substantial areal density gains, moving from <3 TB per platter under the current UltraSMR drives to up to  ~10TB per platter by the end of the decade.  

WDC acknowledges that its ePMR roadmap can extend up to 60TB, but after that, the shift to HAMR is all but inevitable in order to progress towards 100TB capacities and beyond.

WDC is harnessing its patented laser technology to not only reach 100TB drives over the next few years, but scale even further by adding more platters to drives:  

“So for the last 6 years, we've been working on our own patented laser technology. It solves for those 3 problems. By emitting more light, harnessing more of that light into the recording technology, we will increase the aerial density of the HAMR platters from 4 terabytes all the way to 10 terabytes by 2028 per platter. We have 11 platters. It's one of the reasons I'm confident about 100 terabyte HAMR drives by 2029. This technology is not theoretical. It's actually already in the labs. 

We've watched it do in the recording. The other part of it, as you can see from the micrograph, they're shorter. So it allows us to add yet more capacity per drive by packing up to 14 platters into the same 3.5-inch form factor. 10 terabytes, 14 platters, that sounds like 140 terabytes.” 

WDC is accelerating its ePMR and HAMR roadmaps, noting that ePMR shipments are growing double-digits sequentially next quarter. HAMR qualification timelines are also accelerating by six months. 

Management explained in fiscal Q2’s call that ePMR shipments reached more than 3.5 million units, while starting qualification of both its upcoming HAMR and next-gen ePMR drives at two different hyperscaler customers. ePMR shipments were guided to reach closer to 4 million in fiscal Q3, or growth of more than 14% QoQ.  

On HAMR, WDC stated that they pulled forward qualification and started in February with one hyperscaler, with another expected to be initiated relatively soon. Management emphasized at its Investor Day in February that they are “so confident in our road map for HAMR. From last year, we said back in the '27 for the ramp, we pulled it in by 6 months. So it's ramping in the first half of 2027.”  

We recently covered discussions over the role of SSDs in ‘warm’ storage and Nvidia’s upcoming Inference Context Memory Storage platform in our SanDisk analysis in detail. Simply put, Nvidia is essentially proposing SSDs to take a more central role in the ‘warm’ tier where HDDs sits – what Western Digital and competitor Seagate consider ‘nearline’, where data does not have to be accessed instantaneously but must remain readily available.  

We covered Seagate’s response to this proposal in our analysis, with executives believing there ultimately will not be much change to storage architectures with HDDs remaining critical from a TCO perspective to handle the massive volume of data generated by AI applications. Western Digital mirrored this view, explaining that Nvidia’s new initiative will likely at its core accelerate the growth of volume generated, which means HDDs will remain critical for AI storage requirements – management expects HDDs to still account for 80% of storage solutions deployed by hyperscalers over the next five years. 

However, management also pushed back on the economics of utilizing quad-level cell (QLC) SSDs for AI storage workloads, emphasizing that QLCs offer 10% of performance of HDDs for 10X the cost: 

“This performance has led some customers to think about using QLC flash to provide that performance in addition to hard drives. It's very attractive because -- but QLC has a problem when the data is constantly moving as it does in the AI workloads and in the cloud workloads. QLC wears out. And that means you have to make a lot of changes in your software, so it doesn't wear out.  

Otherwise, you end up with silent data corruption. And that is just as scary as it sounds. Hard drives, on the other hand, just don't. They don't wear out. They'll operate for years without wear out and customers like that and it simplifies their code. The other reason to consider QLC flash is that the headline performance of a QLC drive is 6 gigabytes per second. That's way more than the 200 to 250 megabytes per second of a hard drive. But that's a headline number. It's only true when that drive, that QLC drive is attached directly to the GPU with a great big bus. In the real world, in object stores deployed in massive scale, that's not how it's done. Hard drives and QLC drives are connected to the network via a thing called the SAE interface.  

It's a thin pipe that takes data from the drive to the network. It can only support 530 megabytes per second. So customers would get less than 10% of the performance of QLC for 10x the cost of a hard drive. Do you think that's a good deal? I don't now or as a customer.” 

WDC also commented on more specific inference-based HDD demand drivers, such as multi-modal models requiring significantly large data sets to store queries and prompts, video generation, as well as autonomous vehicles and robotics needing extensive data sets to function in real-world situations. All summed up, WDC believes that inference and these upcoming AI applications will drive storage exabyte demand at a >25% CAGR over the next five years, providing a solid foundation for long-term revenue growth as HAMR unlocks a path to higher capacity drives.  

There is one risk with this, in that there will still likely be use cases and applications where customers use a higher mix of SSDs. HDDs offer the lowest-cost per terabyte, ideal for “big data” storage, backups and large AI datasets. However, solid state drives (SSDs), which store data on flash memory chips, are far faster and lower-latency but at a higher cost per terabyte. This means leveraging a mix of HDDs and SSDs is a popular choice, and some AI workloads prioritizing latency may take a higher mix of SSDs.  

High Bandwidth HDD Design and Power-Optimized HDDs 

At its recent Innovation Day, Western Digital shared more information on its product roadmap and technological innovations driving its path to 100TB capacity. WDC is not seeking just capacity gains but also performance gains with high-bandwidth HDD design. This is especially important as throughput (data transfer speeds) must continue to scale alongside capacity to prevent performance bottlenecks. 

This has not been the case over the last several years. WDC explains that since 2017, CMR HDD capacities have increased by 116%, from its 12TB Ultrastar to 26TB, yet maximum sequential throughput only increased 18%, from 255MB/s to 302MB/s. This is critical as a lack of throughput gains will make HDDs less suitable for bandwidth-intensive AI workloads despite strong capacity gains.  

WDC is aiming to boost performance and throughput via two innovations, High Bandwidth Drive (HBDT) and Dual Pivot design technologies. Put simply, WDC is working towards delivering NAND flash-similar performance and throughput but with HDD cost and TCO economics.  

WDC says that its HBDT will enable simultaneous read and write from multiple heads on multiple tracks, which up until now has been done on a single track at a time. Currently, HBDT is able to access two tracks simultaneously, though WDC believes it can ultimately scale to four and eight tracks simultaneously. Under two tracks, WDC says sequential throughput will double and will scale further as HBDT innovation progresses towards eight tracks at once. Importantly, HBDT is already in validation with customers. 

Dual Pivot tech (DPT) unlocks further performance gains by adding a second independent actuator on a separate pivot. Similar to how read and write were previously done on a single track at a time, HDDs have been limited by having one single actuator containing the read-write heads. With DPT, a second actuator is added on the opposite end of the drive, allowing for independent seeking between the two heads.  

This is the main difference between DPT and previous dual actuator drives. Previous drives had to remove on disk to make space for the second actuator to boost performance, sacrificing capacity, whereas with DPT and the placement of the second actuator, WDC can reduce spacing between disks, and boost capacity and performance at the same time. DPT remains in the lab for testing and is expected to be available in 2028. 

Combining both technologies is expected to drive significant performance and throughput gains while on the path to >100TB capacity. WDC states that “two-track HBDT plus dual pivot is projected to increase throughput from today’s 300MB/s to approximately 1.2GB/s, a 4x increase.” This would mean that a 100TB drive would have similar throughput and performance as the currently-available 26TB drives, preserving HDD performance and cost economics. WDC adds that eight-track HBDT and DPT could theoretically increase throughput to 4.8GB/s, another 4x increase from two-track and 16x versus today.   

Here’s how management explained this increase in performance, and this quote provides some perspective as to why demand may be high for drives integrating these technologies, as it can seamlessly integrate into existing infrastructure: 

The thing [customers] really love about this is that we can go to 4, 6 and 8x the performance. It is scalable. By the time we get to 100 terabytes, we could be 8x the performance of today's drives. We already have the technology to do it, and we're developing it, so we're ready for when customers are ready for it. We'll introduce this capability at the 50-terabyte mark to meet the customers' demand so that they are ready for us to consume and take advantage of all this performance. … 

This design will fit in an existing customer chassis with that change. It can be made on the same manufacturing lines. And they just see more performance. So customers are really excited by this. double the transactions smoothly for customers. ... Dual-pivot technology helps customers focus their software effort on improving more performance for AI versus having to deal with how the hard drives are working. And we'll introduce this at the 60-terabyte mark. … 

My biggest problem is finding them enough material so they can start testing. Dual pivot technology will be in their hands in late '27 and '28. So all the performance that the customer's hardware can support their existing boxes, their existing software, their existing networks without having -- can be delivered from these drives with the capacity that we are building without having to use QLC. We deliver performance 10x cheaper than QLC can.” 

Management also shed more light on software optimizations and how this will also accelerate deployment timelines for upcoming tech. WDC explained that the “shortcut is a simple, open API that allows customers to integrate that API to their existing file system, their existing object store,” that will be available on flash and extending to all HDDs scaling to 100TB. This will provide faster qualification and faster time to production, with this becoming available in 2027. 

WDC is also working on power-optimized HDDs, aiming to lower power consumption by up to 20% and boost capacity with minimal trade-offs on performance. The lower power consumption not only will offer a lower TCO, but also make these HDDs more attractive from a hyperscaler perspective by saving more power that can be allocated towards more GPUs.  

WDC says that by spinning the drive slower, “we can reduce the power by 20%, but we only trade 5% to 10% of the sequential I/O [input output operations], not something that the customers have seen before or even thought was possible.” This also will add ~10% more capacity, or 10TB for a 100TB drive, or increasing capacity inside the same 3.5 inch form factor without changing the drive’s power profile. WDC adds that this lower power consumption is optimal for cold data, or data that needs to be accessed within seconds for AI inference, helping enable AI data storage at scale. 

WDC outlined multiple different margin levers at its disposal, from strong yields with its ePMR products to increasing mix of UltraSMR drivers and soon the HAMR ramp. WDC has seen strong margin expansion, with Q2 gross margins up nearly 8 points YoY and operating margin following suit with a nearly 7 point YoY expansion. Perhaps most importantly, WDC expects to drive further gross margin expansion over the next couple of quarters and beyond, due to these levers.  

Management explained that yields for ePMR products are in the low-90% range, noting that “as we get yields up, cost continues to decline. As the UltraSMR mix goes up within those new products as well, that's also going to be a driver of cost down as well.” For context, UltraSMR drives now account for 50% mix in its nearline portfolio, with WDC’s top three customers onboarded with two to three other major customers likely moving to adopt the drives soon. This is expected to drive an increase in UltraSMR mix over the coming quarters and provide solid gross margin tailwinds. HAMR will be another margin lever in play once these drives begin to ramp, as WDC expects its HAMR products to be neutral or accretive to gross margins. 

Touching on the cost front, WDC explained that costs per terabyte were down around (10%) YoY in the quarter, which, combined with a 2-3% increase in ASP, provides room for solid margin expansion. This also pertains to higher capacity drives, which management explained have a cost benefit as well, which likely see lower unit costs, similar to Seagate.  

Analysts questioned about incremental gross margins considering the combined levers WDC has, with management explaining that they are currently running at a 75% incremental margin: 

“On the gross margin line, the guidance that you're giving for 47% to 48%, I guess the back of the envelope math would suggest that you're maintaining what looks to be like a 70%, maybe 75% incremental margin flow-through. So, I guess, my question is, how do you think about the durability of that incremental margin? 

We delivered 46.1% gross margin, up 220 basis points quarter-over-quarter, up 770 basis points year-over-year. And we are guiding to 47%, 48%, so 47.5% at the midpoint, which is up 740 basis points on a year-over-year basis. And, Aaron, I think your math is working. The incremental gross margin is on or about 75%, depending on how you look at it on a year-over-year basis or a quarter-over-quarter basis. So I've stated before, I'm very comfortable with an incremental gross margin higher than 50% and definitely 75% is higher than 50%. 

I mean in gross margins, there's two sides to the equation. On one hand, you have pricing environment. On the other hand, you have the cost environment. In pricing, I've talked about that before. We see a stable pricing environment with prices on a price per terabyte, kind of, flattish to slightly up. Actually, last quarter, it was up 2%, 3% on an ASP per terabyte basis. So that clearly demonstrate the value that we continue to deliver to our customers. 

And on the cost front, the teams continue to execute really well. We continue to upshift our customers to higher capacity drives, which gives us a cost benefit. And then there is great execution as well on driving down the cost in our manufacturing assets as well as throughout the supply chain. And when you look at it last quarter, the cost per terabyte was coming down on or about 10% on a year-over-year basis. And so when you put this all together, we continue to drive further gross margin expansion. And we believe in the next couple of quarters and beyond, we will continue to be able to do that.” 

What the incremental margin means is that for every dollar of revenue that WDC adds compared to the prior quarter, 75% of that flows through to gross margin – WDC delivered a $199 million QoQ increase in revenue this quarter, with $153 million of that flowing to gross profit. Looking ahead, if WDC can maintain this and deliver >$200 million QoQ growth throughout CY26 (as current estimates suggest), it could exit the year with margins above 50%. 

Visibility through 2027-2028 at Top Customers, Pricing is Stable 

WDC has already signed firm orders through calendar 2026 with its top seven customers, though it has visibility into demand extending out into 2028. Management explained that they have ‘robust’ agreements with three of its top five customers, with two of these covering calendar 2028 and one extending through calendar 2028, with these LTAs including both volume and price conditions.  

Analysts asked questions about WDC’s long-term agreements and what the economics of these new orders would look like. WDC revealed that they do contain conditions for volume and pricing, but added quite an important caveat at its Investor Day – hyperscalers want ‘predictable’ pricing, in sharp contrast to rapidly rising (and fluctuating) SSD prices. This means that upcoming contracts will likely have set price escalators so hyperscalers do not get exposed to rapidly changing memory cost structures: 

Irving, just given the tightness of the HDD market and kind of the significant inflation that NAND is going through right now, can you maybe just talk about maybe your patience in being able to sign purchase orders further into calendar '27 to extract better economics just relative to maybe how you were approaching signing POs last year? Is that making any difference in the economics you're able to extract?  

As we highlighted, we're pretty much sold out for calendar year '26. We have firm [purchase orders] with our top 7 customers. And we've also established LTAs with two of them for calendar year '27 and one of them for calendar year '28. Obviously, these LTAs have a combination of volume of exabytes and price. And in relation to pricing, I think first, it's important to recognize [that] there's actually a structural shift in the value that we deliver to them, especially in the impact that we have to their total cost of ownership as the business moves more and more towards inference where monetization is happening.  

So, in this case, the pricing that we've provided there reflects the value that we're delivering to them. And so as Kris mentioned, we continue to see going forward a stable pricing environment that gives us an opportunity to continue to extract more value as we deliver both better TCO value to our customers and to better support their supply-demand needs as well through higher capacity drives. 

This ties in to comments from Investor Day, where management confirmed that they want to ensure there is a fair value exchange between capacity/performance and pricing, noting that the goal is to deliver “predictable pricing” as hyperscalers are concerned about “high volatility of some tiers of the storage space,” referring to the strong QoQ growth in enterprise SSD prices. 

Management also offered some more insights onto pricing trends through 2026, noting that FQ2 had seen stable prices with ASP per terabyte up 2-3%, while projecting mid-to-high single digit YoY ASP growth through the year and remaining stable into 2027: 

“If I look at calendar year 2026, 4 quarters of calendar year '26, I do expect ASP per terabyte to go up mid- to high single digits year-over-year for all 4 quarters, mid- to high single digits year-over-year for '26. And then beyond '26, I expect us to continue to operate in what I call a stable pricing environment, of course, from the higher level that we established in '26.” 

Battling Head to Head with Seagate on HAMR, but Expects to Lead 

It’s safe to say that WDC faces fierce competition with Seagate in the HDD space on both exabyte shipments and on the tech front. WDC exhibits a fair lead in exabytes, shipping 192 nearline exabytes in the quarter versus Seagate’s 165 exabytes. However, Seagate current is ahead when it comes to ramping HAMR drives. 

For an apple-to-apple comparison to Seagate, WDC’s first HAMR products are expected to launch with capacities from 40-44TB, which aligns with Seagate’s Mozaic4+ platform also offering up to 44TB, as both feature 4TB capacity per platter. The key difference is that Seagate’s Mozaic4+ is now shipping to two hyperscalers and ramping through the rest of the year, representing a three quarter head start over WDC in the first half of 2027. 

However, Western Digital expects to quickly take the lead in HAMR-drive capacity, with management confident in achieving 100TB+ products as early as 2029. This goes back to our discussion on the HAMr under the product overview, with WDC aiming to reach 10 TB per platter by 2028 to enable shipping 100TB HAMR drives by 2029.  

One reason that WDC is able to move so fast at scaling capacity is that it begins qualification processes at hyperscalers when introducing new hardware into the labs, cutting ramp timelines by months: “Together with our customers, we started to introduce the hardware into our labs and the qualification of the hyperscaler software so that we can start the qualification process while we're still developing the drive.  

That cuts out months from a qualification process. So by the time we're ready for volume manufacturing, the drive is ready to ramp. As Irving said earlier, we've ramped up our latest generation of drives very quickly. That's one of the reasons. The other part with rapid generation of more capacity points, customers will have a lot of qualifications. So instead of qualifying every single capacity point, they qualify one set of capacity point, let's say, 36 to 41 terabytes, and we will just ship them more capacity as we make it available. One qualification, many capacity points.  

And the next one is going to be at 42 to 56 and so on. So that innovation, not just in the drive design, but also in the processes we do gets us faster time to capacity in customers' hands in their fleets where they need it the most. So putting it all together, our HAMR capacity goes from 40 terabytes to 100 terabytes by 2029.” 

On the flip side, Seagate has that capacity penciled in for the early part of next decade, noting in Q2’s call that its Mozaic3+ and Mozaic4+ “developments align with our long-term areal density road map that extends to 10 terabytes per disk, which we expect to deliver early in the next decade.” This shift will be key to watch, as it suggest that Seagate could soon lag WDC’s capacity roadmap by several years.  

In plain terms, WDC could have a significant capacity and TCO advantage by 2029 if it can realize these density targets, making it a more attractive solution for AI data storage needs 

Revenue Growth Accelerating to 40%, Potentially Peak Growth 

WDC delivered fiscal Q2 revenue of $3.02 billion, up 25% YoY and 7% QoQ, although this marked a deceleration from 27% YoY and 8% QoQ in Q1. Management said this was driven by strong demand for its higher capacity nearline drives.  

Exabyte shipments rose 22% YoY and 5% QoQ to 215 EB, including 103 EB from its ePMR product line on 3.5 million shipments. Revenues are closely correlated with EB shipments with pricing contributing only a 2-3 points of upside.  

Looking ahead to FQ3, WDC guided for revenue of $3.2 billion at midpoint, representing an acceleration to 40% YoY growth, up 15 points, while QoQ growth would tick slightly higher to 6.1%. Current estimates suggest WDC will close out the fiscal year with $3.44 billion in revenue in Q4, up 32% YoY and another 7.5% QoQ. At present, this would suggest that fiscal Q3’s YoY acceleration to 40% would be the company’s peak growth quarter moving through calendar 2026. 

For FY26 ending in June, revenue is expected to increase 31% to $12.47 billion, while an initial look at FY27 points to 25.6% growth to $15.66 billion in revenue. This is above WDC’s long-term revenue growth model for >20% growth CAGR over the next three to five years.  

Similar to Seagate, WDC sees the large majority of its revenue go to Cloud customers, with minimal exposure to Client and Consumer end markets. 

Cloud revenue was $2.67 billion in Q2, up 27.5% YoY and 6.5% QoQ, decelerating from 31.5% YoY and 7.8% QoQ in Q1. Management noted that they are seeing strong demand from hyperscaler customers. Cloud accounted for 89% of revenue in the quarter.  

Assuming similar Cloud mix at 89% in fiscal Q3, though there is potential for slight mix gains on seasonality in its other two end markets, Cloud revenue would be implied at roughly ~$2.85 billion, up 6.5% QoQ and 41.9% YoY. 

WDC’s Client segment represented 6% of revenue at $176 million, up 26% YoY, while Consumer accounted for 5% of revenue at $168 million, declining (3%) YoY. 

As discussed above, WDC is seeing strong gross margin expansion with multiple levers available, and this margin expansion is flowing down the line.  

GAAP gross margin was 45.7% in Q2, up 8 points YoY and 2.2 points QOQ, while adjusted gross margin was 46.1%, up 7.7 points YoY and 2.2 points QoQ. For Q3, adjusted gross margin is expected to be 47.5% at midpoint, up 7.4 points YoY and 1.4 points QoQ.  

GAAP operating margin was 30.1%, up 6.9 points YoY and 2 points QoQ, while adjusted operating margin was 33.8%, up 9.3 points YoY and 3.4 points QoQ. Adjusted operating margin is implied to be 35.5% in Q3, up 9.5 points YoY and 1.7 points QoQ, showing a slight degree of operating leverage.  

GAAP net margin was 59.7% as WDC benefited from a more than $1 billion gain on its 7.5 million share stake in SanDisk, which it has now sold for nearly $3.2 billion to help reduce debt. Adjusted net margin was 26.7%, up 9.3 points YoY and 3.5 points QoQ. 

For a quick view on how current margins stack up to WDC’s long-term model, it expects adjusted gross and operating margins to surpass 50%/40% over the next three to five years, or roughly three to five points of expansion.  