Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✗ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
✓Conservative leverage — Debt/Equity below 1
✗Revenue growing at CAGR >5%
✗EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2016
—
$242.0M
$1.4B
$812.0M
2.2%
—
$17.0B
$8.2B
2017
$19.1B
$397.0M
$2.9B
$1.9B
3.5%
2.1%
$13.2B
$6.4B
2018
$20.6B
$675.0M
$3.4B
$1.9B
5.9%
3.3%
$11.2B
$5.0B
2019
$16.6B
-$754.0M
$671.0M
$182.0M
-7.6%
-4.6%
$10.5B
$3.5B
2020
$16.7B
-$250.0M
$177.0M
$669.0M
-2.6%
-1.5%
$9.6B
$3.0B
2021
$16.9B
$821.0M
$752.0M
$887.0M
7.6%
4.9%
$8.7B
$3.4B
2022
$18.8B
$1.5B
$758.0M
$1.4B
12.5%
8.2%
$7.0B
$2.3B
2023
$6.3B
-$1.7B
-$1.2B
-$1.7B
-15.4%
-26.9%
$7.1B
$2.0B
2024
$1.8B
$135.0M
-$781.0M
$216.0M
1.2%
7.7%
$7.4B
$1.6B
2025
$2.3B
$520.0M
$1.3B
$559.0M
9.8%
22.7%
$4.7B
$2.1B
Warren & Charlie
Buffett / Munger — quality, moat & valuation
WESTERN DIGITAL CORP (WDC) — Investment Memo
🐂 The Bull Case (Warren's voice)
The AI Data Glut: AI doesn't just require compute; it requires an astronomical amount of storage. We are seeing a structural shift where the world's appetite for "bits" is expanding faster than the hardware can be built.
The Oligopoly Moat: This isn't a free market; it's a fortress. With only a handful of players capable of manufacturing high-capacity HDDs, WDC enjoys a cozy scarcity of competition. The moat is simply that it is too expensive and too difficult for anyone else to enter the game.
The "Split" Catalyst: By separating the Flash and HDD businesses, management is effectively removing the "fog" from the valuation. We stop betting on a schizophrenic hybrid and start owning two distinct assets: a steady HDD cash cow and a high-growth (albeit volatile) Flash play.
Attractive Entry: This becomes a Berkshire-style play only if we can buy it at a price that assumes zero growth for a decade. We aren't buying the "AI hype"; we are buying the physical plumbing of the internet at a discount.
🐻 The Bear Case (Charlie inverts)
The Commodity Trap: This is a "Red Queen's Race"—you have to run as fast as you can just to stay in the same place. Constant Capex is required just to prevent your product from becoming obsolete. If the R&D fails once, the business evaporates.
Scenario 1: The NAND Collapse. A massive oversupply of Flash memory from Samsung or Micron crashes prices to the point where WDC's Flash division becomes a permanent liability, dragging the HDD profits into a black hole.
Scenario 2: The Storage Leapfrog. A fundamental shift in how data is stored (e.g., a breakthrough in optical or DNA storage) renders the HDD obsolete. The "moat" of scale becomes a "tomb" of stranded assets.
The Most Likely Killer: Cyclical Insolvency. The violent swings in ROE (-15.4% in 2023) prove this business can lose money faster than it can make it. A perfectly timed downturn combined with a debt spike could lead to permanent impairment within a 3–5 year window.
💰 Valuation & Margin of Safety
Intrinsic value estimate: $54.24 per share
25% margin of safety entry: $40.68(conservative)
50% margin of safety entry: $27.12(Buffett's ideal)
Current Status: Expensive. The market is pricing in an AI miracle that the DCF (based on historical volatility and modest growth) does not support. We are paying for "hope," not "cash."
Verdict: PASS
The business is too volatile and the earnings quality is too schizophrenic for our tastes. We do not buy commodity hardware businesses unless the margin of safety is so deep it protects us from a total industry collapse. At $54.24 intrinsic value, the current market price offers no protection, only risk.
Research Notes· Money Model · Moat · Financials · Management
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.