Western Digital (WDC) Q1 2026 Earnings: Cloud Growth Fuels Profit Surge

Here's a deep dive into Western Digital's (WDC) financial performance for the first quarter of fiscal year 2026, based on their latest 10-Q filing with the SEC. As a key player in the data storage market, primarily known for its hard disk drives (HDDs), WDC's results offer a glimpse into the health of the data center and cloud computing industries. The latest report reveals a period of robust growth, boosted by both strong operational performance and a significant one-time financial event.

A Surge in Revenue and Profitability

Western Digital kicked off its fiscal year with impressive top-line growth. Net revenue for the quarter ending October 3, 2025, reached $2.82 billion, a substantial 27% increase from the $2.21 billion reported in the same period last year.

This revenue growth translated directly into healthier profits. Gross profit soared by 52% to $1.23 billion, pushing the company's gross margin up from 36.4% to an impressive 43.5%. This expansion in margin indicates that the company is not only selling more but is also doing so more profitably. The final net income from continuing operations was a staggering $1.18 billion, a dramatic turnaround from just $153 million in the prior-year quarter.

The flow diagram below provides a visual breakdown of how Western Digital's revenue translated into profit for the quarter.

The Story Behind the Numbers: Cloud Growth and a One-Time Gain

Two key factors drove this remarkable bottom-line performance. First is the stellar performance of the company's largest end market.

• Cloud Revenue: This segment was the engine of growth, with sales jumping from $1.91 billion to $2.51 billion year-over-year. This strong demand from data center and cloud customers underscores the ongoing global need for mass data storage.
• Client and Consumer Segments: In contrast, the Client ($146 million) and Consumer ($162 million) segments remained relatively flat, highlighting the company's increasing reliance on the enterprise and cloud markets.

The second major factor was a non-operating item. The income statement includes a $611 million "Gain on retained interest in Sandisk." This gain is related to the revaluation of WDC's stake in its former Flash business, Sandisk, following its separation into an independent public company. While this is a significant boost to net income, it's important to recognize it as a one-time event that doesn't reflect the company's core operational performance.

Even without this gain, the company's underlying business showed tremendous strength. Operating income—which measures profit from core business operations—more than doubled to $792 million from $334 million a year ago.

Prudent Cost Management

Despite the surge in revenue, Western Digital effectively managed its operating expenses, which decreased by 8% to $435 million. This was primarily driven by a 32% reduction in Selling, General, and Administrative (SG&A) expenses. Meanwhile, Research and Development (R&D) spending increased by a modest 12% to $294 million, signaling continued investment in future technologies without letting costs spiral.

Looking Forward

Western Digital's first-quarter results paint a picture of a company firing on all cylinders. The strong demand from the cloud sector is a powerful tailwind, and disciplined cost control is amplifying profitability. The company also demonstrated confidence in its financial position by repurchasing $553 million of its common stock during the quarter.

While the one-time gain from the Sandisk stake skewed the net income figure, the strong growth in operating income confirms the health of the core business. The key challenge for Western Digital will be to maintain this momentum in the highly competitive and cyclical data storage market, where its fortunes are increasingly tied to the capital spending of a concentrated group of large cloud customers.