Western Digital Corporation (WDC): Near-Term Weakness Diverges from Robust Cloud Demand

Fred Alger Management, an investment management company, released its "Alger Spectra Fund" third-quarter 2026 investor letter. The letter can be downloaded here. During the third quarter of 2026, U.S. equities delivered modest gains, with the S&P 500 advancing 2%. Despite robust corporate earnings and resilient consumer spending, market breadth remained weak as 60% of S&P 500 constituents closed lower. Against this backdrop, the fund lagged the Russell 3000 Growth Index. Class A shares of the fund returned 0.29% without a sales charge and -4.98% with sales charges, compared to 0.45% for the index. Consumer Discretionary and Tech drove the relative performance, whereas Communication Services and Utilities dragged. Macro headwinds weighed on sectors like Energy following oil supply disruptions. On the short side, a position in an IT consulting firm detracted from returns, while a short in an advertising technology company generated positive gains following its weak earnings report and rising competitive threats. Amid these shifting dynamics, the fund continues to prioritize disciplined stock selection to capture long-term opportunities across the expanding AI ecosystem. In addition, please check the Fund's top five holdings to know its best picks in 2026.

In its Q3 2026 investor letter, Alger Spectra Fund highlighted Western Digital Corporation (NASDAQ:WDC). Western Digital Corporation (NASDAQ:WDC) is a data storage company that engages in the manufacturing and distribution of data storage devices and solutions based on hard disk drive (HDD) technology. On October 23, 2026, Western Digital Corporation (NASDAQ:WDC) closed at $343.67, with a $128.64 billion market capitalization. Reflecting the recent momentum, Western Digital Corporation (NASDAQ:WDC) posted a 105.67% YTD gain, trading within a 52-week range of $121.85 to $799.87.

Alger Spectra Fund stated the following regarding Western Digital Corporation (NASDAQ:WDC) in its Q3 2026 investor letter

"Western Digital Corporation (NASDAQ:WDC) is a leading provider of hard disk drives, which store vast quantities of data for cloud providers, enterprises, and data centers. Following the separation of its flash-memory business, the company now focuses primarily on high-capacity hard drive storage. We believe Western Digital is well positioned to benefit from the continued expansion of data, as artificial intelligence applications generate enormous volumes of information that must be stored reliably and at low cost. Shares detracted from performance during the quarter despite strong operating results and sustained demand from cloud customers. After a period of strong gains, the stock came under pressure when the company's outlook fell short of elevated investor expectations, prompting questions about whether recent strength in hard drive pricing and demand could be sustained. Despite the recent share price weakness, we believe the company's fundamentals remain strong, supported by its scale and improving profitability."

Western Digital Corporation (NASDAQ:WDC) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. According to our database, 98 hedge fund portfolios held Western Digital Corporation (NASDAQ:WDC) at the end of the second quarter, up from 83 in the previous quarter. While we acknowledge the potential of Western Digital Corporation (NASDAQ:WDC) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we discussed Western Digital Corporation (NASDAQ:WDC) and shared a list of oversold AI stocks where Wall Street analysts are spotting 50%+ upside. In addition, please check out our hedge fund investor letters Q3 2026 page for more investor letters from hedge funds and other leading investors.

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This article is originally published at Insider Monkey.