Earnings guidance comprehensively beats expectations, yet Western Digital Corporation (WDC.US) gets sold off! Wall Street comes to its defense: capex concerns are overblown.

Note that Wall Street analysts rushed to weigh in after storage vendor Western Digital Corporation (WDC.US) reported better-than-expected first-quarter results and guidance; the company also said capital expenditures will increase in the coming years. The company's shares fell 4% premarket, and rival Seagate (STX.US) slipped in sympathy. Wells Fargo & Company analyst Joe Quatrochi said concerns about the spending increase are "overblown" and urged investors to buy the dip. "We remain positive on Western Digital Corporation following solid fiscal 2027 first-quarter results and guidance," Quatrochi wrote in a note to clients. "We view concerns around elevated capex to support additional head/media capacity and the HAMR transition as misplaced, and see positive setup with [accelerated] EB growth [continuing through] 2028 and a path toward 70%+ gross margins." Quatrochi rates Western Digital Corporation and has a $450 price target. On the earnings call, Western Digital Corporation management said it expects capex to average 4% to 6% of revenue over the next five years, with spending slightly higher over the next two years. However, the company also targets roughly a 10% year-over-year reduction in cost per terabyte to help offset rising input costs. Morgan Stanley analyst Erik Woodring also said the selloff triggered by rising costs is unwarranted. Woodring explained, "Since the SanDisk (SNDK.US) spin-off, Western Digital Corporation has been consistent they need to invest in head/media/substrate capacity (plus automation tools) to support the product mix shift toward 10-14 platter high-capacity HDDs," "Even back in September, when referencing capex as a percentage of revenue, Western Digital Corporation said '...over the next few years, we may be slightly above that [4%-6%] range, but over a five-year period, it should land at or near that 4%-6%.' So last night's capex commentary which sent shares down 6.5% after hours despite a comprehensive beat and raise on results and guidance is entirely consistent with what the company had already communicated to the market." Woodring reiterated his "Overweight" rating on Western Digital Corporation and raised his price target to $668 from $643. JPMorgan analyst Joseph Cardoso also said concerns about capex are exaggerated. "While near-term cost per terabyte declines remain weighed down by product transitions and input cost inflation, management emphasized confidence in returning to a 10% reduction through higher areal density and value engineering initiatives," Cardoso wrote. "To that end, we believe this report reinforces the favorable supply-demand setup for Western Digital Corporation and the HDD industry overall, with sustained pricing strength and accelerating EB shipments further supporting margin expansion and earnings leverage." Cardoso reiterated his "Overweight" rating on Western Digital Corporation and raised his price target to $650 from $600.