Arm vs. Western Digital: Which Tech Stock Is the Better Buy in November?

The surge in artificial intelligence (AI) has forced investors to choose between infrastructure providers. Choosing between Arm (NASDAQ:ARM) and Western Digital (NASDAQ:WDC) involves weighing architectural licensing against physical data storage solutions.

Arm provides the blueprints for power-efficient processors found in nearly every smartphone and increasingly in data centers. Western Digital manufactures the physical hardware used to store vast amounts of digital information. While both benefit from rising compute demands, they operate at opposite ends of the hardware stack with very different financial profiles.

The case for Arm

Arm designs and licenses processor architecture and software to a wide range of partners among semiconductor stocks. The company targets several high-growth markets including mobile devices, automotive systems, and cloud-based artificial intelligence. While its technology powers billions of devices, Arm does not disclose specific major customers in its regulatory filings.

Through the July 2026 quarter, trailing 12-month (TTM) revenue reached nearly $5.2 billion, representing a growth rate of approximately 25% over the previous year. The company reported net income of roughly $1 billion for the period. This resulted in a net margin of close to 20%.

As of its July 2026 balance sheet, the debt-to-equity ratio was approximately 0.1x. This metric measures total debt relative to shareholders' equity, suggesting the company uses very little borrowed money. The current ratio, a liquidity measure indicating whether a company can cover short-term obligations, was nearly 5.3x.

TTM free cash flow, calculated as cash flow from operations minus capital expenditures, reached approximately $1.5 billion. Note that stock-based compensation accounted for roughly 69% of operating cash flow, inflating reported cash generation, since SBC is a non-cash expense added back to cash flow.

The case for Western Digital

Western Digital specializes in hard disk drive technology and data storage solutions for cloud providers and retail consumers. The cloud end market is the most critical segment for the business, accounting for nearly 89% of net revenue as of its latest annual report filed in 2026. Customer concentration is a significant factor, as the top ten customers account for roughly 73% of net revenue. Customer concentration like this adds a layer of risk to the business.

TTM revenue through the October quarter reached nearly $14.5 billion, a substantial increase of approximately 43% from the prior year. The company reported net income of $10 billion during this period. This led to a net margin of approximately 69%, representing a sharp increase from previous fiscal years.

Based on its October 2026 balance sheet, the debt-to-equity ratio was roughly 0.1x. The current ratio stood at approximately 1.4x, suggesting the company maintains enough short-term assets to cover its immediate debts.

TTMF free cash flow reached approximately $4.3 billion for the fiscal year.

Risk profile comparison

Arm faces competition from alternative architectures, such as the open-source RISC-V standard. Because the company relies on licensing its intellectual property, any shift in designer preferences could impact its long-term royalty revenue. Additionally, the business remains sensitive to the cyclical nature of the global smartphone and consumer electronics markets.

Western Digital deals with high revenue concentration, making it vulnerable to demand shifts from a small number of cloud customers. The company relies on a limited number of single-source suppliers for critical components, which creates potential supply chain disruptions. Furthermore, failing to transition successfully to new storage technologies like Heat-Assisted Magnetic Recording (HAMR) could hurt its competitive position.

Valuation comparison

Western Digital appears to be the more value-oriented choice because its Forward P/E, which compares price to future earnings estimates, is significantly lower than Arm's.

The P/S ratio measures market value against sales over the past twelve months.

Valuation metrics include those sourced from Financial Modeling Prep (FMP) and may differ from those of other data providers.

Which stock would I buy right now?

Western Digital is growing at a higher rate, benefiting from a strong AI-driven demand cycle. But it basically sells a commodity product that can cause sharp swings in selling prices, which can weigh on financials. I would buy and hold Arm for its more consistent operating history and opportunities to gain share in the data center market.

Agentic AI runs on CPUs, which could drive significant growth for Arm. Importantly, Arm doesn't manufacture chips. It designs them and then profits from royalties and licensing fees on every chip shipped using its chip architecture. That's an attractive business model and is why the stock generally gets rated at a high P/E.

Arm's revenue has grown at a compound annual rate of 25% over the past three years. CEO Rene Haas mentioned on the July 2026 earnings call that the addressable market for CPUs was estimated at $100 billion earlier in 2026 but could now be approaching $200 billion.

Overall, I would rather pay up for a more consistent business that generates profits from licensing fees, which is why I would rather buy Arm today to hold for the long term.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arm Holdings and Western Digital. The Motley Fool has a disclosure policy.