Up 981%, Is Western Digital Stock Still a Buy?

With shares up by an eye-popping 981% over the past 12 months, Western Digital (NASDAQ: WDC) is one of Wall Street's latest darlings in the generative artificial intelligence (AI) megatrend. The company is benefiting from the surging demand for its high-capacity computer memory and storage hardware needed to help clients train and operate large language models (LLMs).

The factors that led to Western Digital's explosive rally are still in play. But it's hard to not get nervous when looking at a stock chart that has gone practically vertical. Let's explore the pros and cons of the company to decide if it is still a good buy or if investors should take profits and run.

What is Western Digital?

Since its founding in 1970, California-based Western Digital has grown to become a major supplier of consumer and enterprise data storage solutions like hard disk drives (HDDs) and solid state drives (SSDs).

But while these products are useful, this part of the tech sector has historically been much less glamorous and attractive to investors.

In fact, Western Digital stock generated practically no sustained growth between August 1997 (at the height of the PC boom) and April 2025. That's almost three decades of essentially dead money at a time when software and internet companies like Apple, Amazon, and Microsoft were delivering life-changing returns to their shareholders.

The stock's fortunes abruptly changed in late 2025 when investors started realizing that memory and storage were becoming the primary bottlenecks in the race to create bigger and better AI models.

While companies like Nvidia dominated the headlines with their processing chips, the constant improvements in their hardware also created a need for storage solutions powerful enough to keep up. Data center clients are racing to purchase this hardware practically as fast as it can be produced, leading to memory hardware shortages and rapidly rising prices. Western Digital is a major beneficiary of this trend.

The rally is rooted in fundamentals

Western Digital's recent rally isn't driven by hype alone. The company's fiscal third-quarter earnings show impressive operational momentum. Revenue jumped 45% year over year to $3.34 billion, driven by data center demand for HDDs and other types of data storage infrastructure. Perhaps most importantly, the company's gross margin is also rising, jumping from 39.8% to 50.2% over the last 12 months.

Bigger margins mean better operating leverage, which measures how well sales increases translate to improvements in the bottom line. When both sales and margins rise at the same time, profits tend to explode. Western Digital's net income jumped 516% year over year to $3.2 billion -- a move big enough to explain why its stock chart has gone parabolic.

Image source: Getty Images.

But Western Digital's situation isn't all positive. With a forward price-to-earnings (P/E) multiple of 31, the stock's current valuation seems to already price in the profitability growth. Furthermore, the recent divestiture of SanDisk reduces Western Digital's exposure to the faster-growing NAND flash memory market, which may be more attractive for data center clients because of its superior speed and lower power consumption relative to older technologies like HDDs.

Is Western Digital still a buy?

For tech investors, missing out on the memory stock boom may be especially painful because of how predictable it was. It was intuitive that rapidly improving AI processors would eventually need better memory, and there were already rumblings of shortages in early 2025, well before companies like Western Digital started their rocketship rallies.

That said, it might pay to ignore the fear of missing out (FOMO) for now and hunt for the next undiscovered growth opportunity that might emerge over the next few years. Investors who already own Western Digital stock should consider taking some profits off the table because the company already looks fairly valued.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, Nvidia, and Western Digital. The Motley Fool has a disclosure policy.