S&P lifts Western Digital outlook to positive on AI demand

The revision comes as Western Digital's business is being reshaped by demand from hyperscale cloud providers for storage that supports both AI training and inference. That demand is not just lifting revenue but also expanding profitability: S&P expects EBITDA margins to widen by 1,000 basis points this fiscal year, helped by technologies like UltraSMR and progress on next-generation heat-assisted magnetic recording qualifications.

The agency is also taking comfort from structural changes in how storage is sold. Build-to-order models have made revenue more predictable than in past cycles, and traditional hard disk drives retain a decisive cost-per-bit advantage over solid-state alternatives in data centers, which helps protect Western Digital's core market share. The company's balance sheet adds another layer of support, with S&P expecting a net cash or near-net cash position even as capital expenditures rise.

That said, Western Digital remains exposed to the capital spending patterns of cloud giants, which are inherently cyclical. The positive outlook ultimately hinges on whether AI infrastructure spending stays strong enough to keep free cash flow near the $5 billion to $6 billion range and whether margin gains prove permanent rather than a temporary spike.