Forget Micron for a Second: This Storage Maker Just Crossed a Profitability Milestone and Raised Its Dividend 20%

Memory specialist Micron Technology has rightly grabbed much of the spotlight in recent conversations about how artificial intelligence (AI) is reshaping the broader storage industry. But while investors talk about Micron, another company in the data storage space has quietly put together one of the more striking financial inflections in hardware.

Western Digital (NASDAQ: WDC) -- now operating as a pure-play hard disk drive maker after spinning off its flash memory business as Sandisk in February 2025 -- reported fiscal third-quarter results in late April that shifted the narrative. In the report, the company crossed a meaningful profitability threshold and raised its dividend for the second time in roughly six months.

Of course, the stock has already moved a lot. Shares have soared since the AI storage thesis took hold. But despite the stock's recent astronomical gains (shares are up more than 200% year to date), it's still worth a close look.

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A profitability milestone

For its fiscal third quarter (the period ended April 3, 2026), Western Digital reported revenue of $3.34 billion -- up 45% year over year. That growth rate is a sharp acceleration from 25% in the prior quarter and 27% in fiscal Q1.

The bigger story, however, is profitability. Western Digital's non-GAAP (adjusted) gross margin reached 50.5% during the quarter -- the first time the metric has exceeded 50% in the company's history. And that's up from 46.1% in fiscal Q2 and about 40% in the year-ago period. Adjusted earnings per share, meanwhile, nearly doubled year over year to $2.72.

The storage maker said average selling price per exabyte rose 9% year over year during the period, with net revenue also driven by a 34% increase in exabytes sold.

The company is also continuing to ramp UltraSMR, a high-capacity technology that two of its largest customers now use to meet nearly all of their exabyte demand, according to management.

And then there's the dividend. Reflecting its confidence, the board approved a 20% increase to the quarterly cash dividend, lifting it to $0.15 per share. That follows a 25% raise announced last October. When combined, the payout has climbed 50% in roughly six months. Western Digital's free cash flow during the third quarter came in at $978 million -- easily covering both the dividend and substantial share repurchases.

A strong outlook

Looking ahead, management expects fiscal fourth-quarter revenue of about $3.65 billion. At the midpoint, that would represent year-over-year growth of roughly 40%. And management's guidance for an adjusted gross margin of 51% to 52% is encouraging, too.

"The demand drivers are clear: Virtually every AI workload, from training, inference, agentic AI to physical AI, creates data that is stored persistently and cost-efficiently on HDDs," Western Digital CEO Irving Tan said during the company's fiscal third-quarter earnings release.

Still, this is far from a low-risk stock.

One key risk is customer concentration. A small group of hyperscale buyers drives the bulk of Western Digital's revenue, so a pullback from even one of them could weigh on results. Further, the HDD industry has a long history of cyclicality, and today's pricing strength is heavily dependent on a favorable pricing environment that isn't guaranteed to persist.

Further, the ramp of the company's next-generation HAMR drives also carries execution risk. The storage company has said qualification work is ongoing at four customers, with both yield and reliability still being refined ahead of a 2027 ramp.

Then there's the stock. Shares have soared dramatically over the past year as the AI storage thesis took hold. Even with the underlying business performing exceptionally well right now, buying after a run like that requires the company to keep delivering strong earnings growth for years to come. A meaningful slowdown in hyperscaler spending -- or stumbles on HAMR execution -- could send shares into a sharp correction.

Overall, the hard-drive maker looks like an interesting way to gain exposure to AI data infrastructure outside the more crowded memory names. But interested investors should treat this as a high-risk investment and size any position in Western Digital stock accordingly.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Western Digital. The Motley Fool has a disclosure policy.