Western Digital (WDC.US) CFO refutes claims of AI demand peaking: No signs of weakening, if it cools down it could help us catch up with the demand gap

Western Digital (WDC.US) Chief Financial Officer strongly supports the outlook for AI storage demand, but the company's aggressive capital expenditure plans have raised investor doubts, putting pressure on the stock price on Friday.

Golden Ten Data mentioned that during the Q1 fiscal quarter conference call on October 22, Western Digital CFO Kris Sennesael stated that hyperscale cloud service provider customers "show no signs of wavering" and are continuously increasing capital expenditures, discussing supply demands for 2030 to 2031 with the company.

Although the company's quarterly results exceeded expectations and guidance for profitability was raised, the substantial increase in capital expenditure overshadowed these positives, sparking concerns in the market about the sustainability of AI data center investments. Western Digital shares closed down by about 3% on Friday.

Currently, the storage and other AI-related sectors are facing widespread pressure, as doubts grow about whether heavy investments in data centers and computing infrastructure can be converted into returns in a timely manner.

Capital expenditure surges, free cash flow under pressure

In the most recent fiscal quarter, Western Digital's capital expenditure was more than double compared to the same period last year, mainly aimed at expanding production capacity for high-capacity hard drives. According to Bloomberg Industry Research, this move narrowed the company's free cash flow margin by about three percentage points.

During the company's conference call, Sennesael stated that capital expenditure is expected to remain at around 4% to 6% of revenue over the next five years, but spending will be "slightly above" the average of this range in the next two years. This statement struck a nerve in the market, causing some investors to worry about limited short-term financial flexibility.

Facing external doubts, Sennesael defended the company by citing a broader customer structure. He pointed out that hyperscale cloud providers, emerging cloud service providers, and cutting-edge labs developing AI models are all continuously increasing their investments in storage.

He further added that even if the momentum of AI development slows down, it may "help the company catch up with existing demand gaps," positing that the current supply shortage actually provides support.

However, market research firm Vital Knowledge highlighted in a report after the earnings release that the core issue remains "whether data center spending can maintain its current pace and whether the large backlog of orders can eventually convert into actual revenue."

On the performance front, Western Digital remains steady. The company predicts adjusted earnings per share in the second fiscal quarter could reach up to $6, significantly higher than the average analyst estimate of $4.80. At the same time, the company raised the quarterly dividend by 17%, reflecting management's confidence in mid-term profitability.

Nevertheless, the impressive guidance was not enough to fully dispel market concerns over the pace of expanded capital expenditure, and the decline in stock price reflects the ongoing divergence among investors regarding the return cycle of AI investment.

This article is sourced from "Golden Ten Data", author: Bao Yilong; Editor at Zhidu Finance: Li Cheng