Western Digital CFO Refutes Claims of Peaking AI Demand: No Signs of Slowdown, Cooling Off Would Actually Help Us Catch Up with Demand Gap

Western Digital Chief Financial Officer voices strong support for AI storage demand prospects, but the company's aggressive capital expenditure plans have raised investor concerns, putting pressure on the stock price on Friday.

Mentioned by Wallstreetcn, during the Q1 fiscal year earnings call on October 22, Western Digital CFO Kris Sennesael stated that hyperscale cloud service provider clients are showing "no signs of wavering," are continuously increasing capital expenditures, and are already discussing supply needs for 2030 to 2031 with the company.

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

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

In the most recent fiscal quarter, Western Digital’s capital expenditures more than doubled compared to the same period last year, mainly to expand high-capacity hard drive production capacity. According to Bloomberg Industry Research, this move narrowed the company’s free cash flow margin by about three percentage points.

During the company call, Sennesael stated that capital expenditures are 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" the average of this range. This statement rattled the market, causing some investors to worry that short-term financial flexibility may be limited.

In response to external doubts, Sennesael cited a broader customer structure to defend the company. He indicated that hyperscale cloud providers, emerging cloud service providers, and advanced labs developing AI models are all continuously increasing investments in storage.

He also added that even if AI growth momentum slows down, it may "help the company catch up with the current demand gap," suggesting that the current situation of demand outstripping supply is actually supportive.

However, market research firm Vital Knowledge highlighted in a report after the earnings release that the core issue remains whether "data center spending momentum can be maintained at the current pace and whether the massive backlog of orders can eventually turn into actual revenue."

On the performance front, Western Digital showed solid results. The company forecasted that adjusted earnings per share for the second fiscal quarter could reach as high as $6, significantly above the analysts’ average estimate of $4.80. Meanwhile, the company raised its quarterly dividend by 17%, reflecting management's confidence in medium-term profitability.

Nevertheless, the impressive guidance was not enough to completely dispel concerns regarding the pace of capital expenditure expansion. The drop in stock price reflects ongoing investor disagreement over the issue of AI investment return cycles.