Seagate Technology Is Soaring After Its Strong Earnings Report. Should You Buy Western Digital Before Its Earnings Report?

Storage and memory stocks had experienced pullbacks amid broad macroeconomic jitters and valuation concerns surrounding artificial intelligence (AI) hardware trades. Then came Seagate Technology (NASDAQ: STX) with a strong fourth-quarter, beat-and-raise performance, lifting the stock by more than $100 between its close on July 28, when it announced earnings, and its close on July 30.

Because Seagate and Western Digital (NASDAQ: WDC) operate as a tight duopoly in the high-capacity, hard disk drive (HDD) market, Seagate's performance offers clear visibility into the underlying health of the data storage industry and Western Digital's own performance.

That's good news for investors in Western Digital, which reports its Q4 results on Aug. 5. Its shares rose 15% between the stock's close on July 28 and its close on July 30. Here are three reasons why Western Digital's stock could jump higher after it reports earnings, and one reason it won't:

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Seagate blew past analysts' consensus estimates

Seagate reported a 48% year-over-year Q4 revenue surge, driven primarily by cloud data centers and hyperscalers purchasing high-capacity nearline drives for AI workloads. Management noted that customers are securing capacity commitments well into future years. This directly dispels recent market concerns about a potential slowdown in AI infrastructure spending, confirming that hyperscaler demand for mass-capacity storage remains exceptionally robust, a trend that directly benefits Western Digital's enterprise HDD division.

Western is forecasting Q4 revenue of $3.65 billion, representing a year-over-year gain of 36.5%. It also said it expects non-GAAP gross margin of 51.5%, up 1,020 basis points from the same quarter a year ago, and non-GAAP earnings per share (EPS) of $3.25, up 95.8%, year over year. If it can reach or exceed those numbers, investors will buy rather than sell on the news.

The stock is still off its 52-week highs

While Western Digital is trading at slightly more than 31 times trailing earnings, it's actually not that high considering that Seagate's valuation is nearly double that level. Western, despite its recent share run-up, is still trading at a discount to its 52-week high of $799.87, showing there's still plenty of room for the stock to climb.

Seagate's fiscal 2027 Q1 earnings guidance of $4.1 billion, give or take $100 million, and non-GAAP EPS of $7.10 to $7.50, help to reset investor confidence across the entire data storage sector. This rally elevates baseline expectations and provides a favorable tailwind for Western Digital. It's important to note that concerns about high AI spending haven't prevented hyperscalers from buying data storage HDDs from Western Digital and Seagate.

Accelerating free cash flow and capital returns

Western Digital's operational execution is generating substantial cash, as evidenced by nearly $1 billion in free cash flow in the fiscal third quarter. This strong cash profile reinforces financial strength, supports ongoing capital returns such as cash dividends, and gives management the flexibility to continue paying down debt. Strong cash-flow growth frequently acts as a primary trigger for institutional investors to rerate a stock post-earnings.

One reason to worry: A high bar has been set

The primary risk facing Western Digital heading into the earnings announcement is that much of the optimism may already be priced into the stock. Shares have experienced a substantial rally leading into late July, setting an exceptionally high bar for performance.

If Q4 results merely meet expectations rather than significantly exceeding them, or if management provides conservative forward guidance due to broader macroeconomic uncertainties or cyclical risks in the consumer storage market, investors could seize the opportunity to take profits, leading to a pullback despite solid core numbers.

James Halley has positions in Seagate Technology Plc. The Motley Fool has positions in and recommends Western Digital. The Motley Fool has a disclosure policy.