Western Digital (WDC.US) CFO refutes the theory that AI demand is at its peak: there is no sign of wavering; if it cools down, it will help us catch up with the demand gap

The chief financial officer of Western Digital (WDC.US) strongly supported the prospects for AI storage demand, but the company's aggressive capital expenditure plans raised doubts among investors, putting pressure on the stock price on Friday.

Wall Street News mentioned that during the Q1 fiscal quarter conference call on October 22, Western Digital CFO Kris Sennesael said that hyperscale cloud service provider customers “show no signs of fluctuation” and are continuing to expand capital expenditure and discuss supply needs from 2030 to 2031 with the company.

Although the company's quarterly results exceeded expectations and profit guidelines were raised, the sharp increase in capital expenditure plans overshadowed these benefits, raising market concerns about the sustainability of AI data center investments. Western Digital closed down about 3% on Friday.

Currently, storage and other AI-related sectors are facing widespread pressure, and doubts are growing about whether the market's heavy investment in data centers and computing power infrastructure can be rewarded in a timely manner.

Capital expenditure surged, and free cash flow was under pressure

In the fiscal quarter up to the recent fiscal quarter, Western Digital increased its capital expenditure by more than two times compared to the same period last year, mainly to expand the production capacity of high-capacity hard drives. According to Bloomberg industry research data, the move caused the company's free cash flow profit margin to narrow by about 3 percentage points.

Sennesael said in a company conference call that capital expenditure is expected to remain around 4% to 6% of revenue over the next five years, but spending over the next two years will be “slightly above” this range average. This statement has stirred up market nerves, causing some investors to worry that short-term financial flexibility will be limited.

Faced with questions from the outside world, Sennesael defended the company by citing a broader customer structure. He pointed out that hyperscale cloud vendors, emerging cloud service providers, and cutting-edge laboratories developing AI models are all continuing to increase storage investment.

He also added that even if the AI development momentum slows down, it may “help the company catch up with the existing demand gap”, implying that the current situation of supply is in short supply instead forms support.

However, market research firm Vital Knowledge suggests in a post-earnings report that the core question remains “whether the data center spending momentum can maintain its current pace and whether the huge backlog of orders can eventually be converted into actual revenue”.

At the performance level, Western Digital's performance was steady. The company predicts adjusted earnings per share for the second fiscal quarter to reach as much as $6, higher than analysts' average expectations of $4.80, which is a significant increase. Meanwhile, the company raised its quarterly dividend by 17%, demonstrating management's confidence in medium-term profitability.

However, the bright performance guidelines have failed to completely allay the market's doubts about the pace of capital expenditure expansion, and the decline in stock prices suggests that investors are still divided on the AI return cycle.

This article was transferred from “Wall Street News” by Bao Yilong, Zhitong Finance Editor: Li Cheng