S&P Global Lifts Western Digital Outlook to Positive on AI-Fueled Growth Forecast

S&P Global Ratings has revised its outlook on Western Digital Corporation (NASDAQ: WDC) to positive from stable, signaling growing confidence in the data storage manufacturer's financial trajectory. The ratings agency, which affirmed its 'BBB-' issuer credit rating, pointed to accelerating cash flow and sustained low leverage fueled by booming demand for artificial intelligence infrastructure.

AI Demand Drives Revenue Forecast

The outlook revision is underpinned by S&P's projection that Western Digital's revenue will surge by approximately 44% in fiscal 2027. This rapid top-line growth is attributed to intense demand from hyperscale cloud providers, who require vast storage solutions for AI training and inference workloads.

S&P also anticipates EBITDA margins will expand by 1,000 basis points in the current fiscal year. The agency credits this to a combination of higher pricing power, operational leverage, and the expanding adoption of advanced technologies like UltraSMR and progress on next-generation heat-assisted magnetic recording (HAMR) qualifications.

Strengthening Balance Sheet and Cash Flow

The anticipated growth is expected to translate into robust liquidity for the company. S&P projects Western Digital's free cash flow generation will reach roughly $5 billion in fiscal 2027.

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This strong cash generation should allow the company to maintain a net cash or near-net cash position, according to the report. S&P noted this provides a "formidable balance sheet cushion" even as capital expenditures increase to support manufacturing transitions.

Path to an Upgrade and Potential Risks

While Western Digital remains exposed to the cyclical capital spending of its large cloud customers, S&P noted that structural industry shifts toward build-to-order models have "materially enhanced revenue visibility." The agency also highlighted that traditional hard disk drives (HDDs) maintain a decisive cost-per-bit advantage over solid-state alternatives within modern data centers, helping to insulate the company's core market share.

S&P indicated a potential rating upgrade could occur if Western Digital sustains free cash flow near $5 billion to $6 billion while demonstrating permanent gross margin expansion and continued technology leadership. Conversely, the outlook could revert to stable if a sudden downturn in AI infrastructure spending leads to industry oversupply or weakens cash generation.