EPS of $1.70 increased by 41.2% from previous year
Gross margin of 18.3%
Net income of 1.16B
""We had a strong operational execution in the second quarter with record AI shipments. Our revenue was a record $29.8 billion, up 19%. ISG and CSG were up 22%. Earnings per share increased by 19% to $2.32, marking a Q2 record."" - Jeffrey W. Clarke
Dell Technologies delivered a strong Q2 FY2026, underscoring the continued trajectory of AI infrastructure demand and a diversified, end-to-end product portfolio. Revenue of $29.8 billion rose 19% year over year, driven by record AI shipments and double-digit growth in ISG, with ISG up 44% and CSG up 1% in aggregate. The AI mix lifted near-term profitability pressures but also established a substantial backlog and a robust five-quarter pipeline that Dell expects to convert into incremental orders. Management signaled that AI-specific margin dynamics should improve in the back half as the mix normalizes toward higher-margin traditional servers and Dell IP storage, even as AI servers remain a meaningful revenue driver and an increasingly important attach point for networking and services.
Key financials show a resilient operating profile: gross profit of $5.447 billion on revenue of $29.776 billion yields a gross margin of 18.3%, while operating income reached $1.773 billion (operating margin 5.95%) and net income $1.164 billion (net margin 3.91%). Diluted EPS stood at $2.32 for Q2. Cash generation remained strong, with operating cash flow of $2.543 billion and free cash flow of $1.868 billion; cash and investments totaled $9.8 billion at quarter-end, and total debt stood at $28.689 billion (net debt $20.544 billion). Dell maintained capital return discipline, repurchasing 8 million shares at an average of $114 and paying a quarterly dividend of about $0.53 per share.
Management guided a higher AI-focused revenue trajectory for the full year, signaling confidence in the NVIDIA-powered AI platform (including GB200/GB300 variants) and a multi-year AI TAM expansion. The company projects FY26 revenue of $105–$109 billion and non-GAAP EPS of $9.55 +/- $0.25, with AI server shipments expected to reach roughly $20 billion for the year. Near-term execution remains a priority, with guidance for Q3 revenue of $26.5–$27.5 billion and OpEx down low single digits, supported by a plan for margin improvement across ISG and CSG as AI mix rebalances. Investors should monitor AI backlog conversion, enterprise AI momentum, PC refresh timing, and ongoing margin progression as key drivers of the stock’s longer-term valuation trajectory.
Key Performance Indicators
Revenue
29.78B
QoQ: 27.37% | YoY:18.98%
Gross Profit
5.45B
18.29% margin
QoQ: 10.33% | YoY:2.56%
Operating Income
1.77B
QoQ: 52.19% | YoY:32.12%
Net Income
1.16B
QoQ: 20.62% | YoY:37.59%
EPS
1.68
QoQ: 20.86% | YoY:41.18%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $29.776B, up 19% YoY; QoQ up 27.37% (per earnings metrics).
Gross profit: $5.447B; gross margin 18.29% (YoY gross margin dynamic affected by AI mix).
Revenue and profitability metrics:
- Revenue: $29.776B, up 19% YoY; QoQ up 27.37% (per earnings metrics).
- Gross profit: $5.447B; gross margin 18.29% (YoY gross margin dynamic affected by AI mix).
- Operating income: $1.773B; operating margin 5.95% (YoY +32.12%; QoQ +52.19%).
- Net income: $1.164B; net margin 3.91% (YoY +37.59%; QoQ +20.62%).
- EPS (Diluted): $1.70; GAAP EPS $1.68; Q2 non-GAAP EPS $2.32 (YoY +19%); QoQ +20.86%.
- Cash flow: Cash flow from operations $2.543B; free cash flow $1.869B; net change in cash $0.438B; cash at year end $8.291B; cash and short-term investments $8.145B.
- Balance sheet health: Total assets $89.176B; total liabilities $91.942B; total stockholders' equity negative $2.766B; net debt $20.544B (cash $8.145B; total debt $28.689B).
- Backlog and AI demand: AI backlog $11.7B; AI orders in Q2 $5.6B; AI server shipments $8.2B; 5-quarter AI pipeline growth with enterprise and sovereign opportunities growing double digits; 6 consecutive quarters of double-digit ISG revenue growth; ISG revenue $16.8B (record).
- Segment mix: ISG $16.8B (+44% YoY); CSG $12.5B (+1%); Total ISG+CSG margin dynamics affected by AI mix; Dell IP storage and PowerStore all-flash growth noted; traditional servers highlighted as a driver of long-term profitability despite near-term mix shifts.
- Guidance updates: AI server shipments raised to $20B for FY26; Q3 revenue guide $26.5B–$27.5B; FY26 revenue guide raised to $105B–$109B; non-GAAP EPS guide raised to $9.55 ± $0.25. OpEx expected to decline in the low single digits; I&O guided to $1.4B–$1.5B.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
29.78B
18.98%
27.37%
Gross Profit
5.45B
2.56%
10.33%
Operating Income
1.77B
32.12%
52.19%
Net Income
1.16B
37.59%
20.62%
EPS
1.68
41.18%
20.86%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key takeaways from the earnings call organized by theme:
- AI strategy and execution: Dell reported record AI shipments, with AI orders of $5.6B in Q2 and AI server shipments of $8.2B, driving a trailing backlog of $11.7B. The company highlighted a 5-quarter AI pipeline that is growing and a converter-ready enterprise audience, with enterprise buyer activity broadening across industries. Management emphasized speed-to-market in NVIDIA-based platforms (GB200/GB300) and the value of Dell design and manufacturing capabilities in AI data center solutions.
- Margin and profitability dynamics: AI mix was a primary driver of reported gross margins and operating margin compression in ISG due to AI leadership. Management indicated margin improvement in the second half as AI mix normalizes toward higher-margin traditional servers and Dell IP storage, with AI margins expected to improve as scaling, value engineering, and enterprise attach opportunities (networking, storage, professional services) mature.
- Storage and Dell IP focus: Storage revenue declined 3% in Q2, though all-flash storage and PowerStore showed strength; Dell IP storage margins were highlighted as a positive margin lever and expected to outperform the broader market in the second half.
- North America demand dynamics and PC cycle: Dell observed a weakness in North American traditional servers in April, with broader international strength. The PC refresh remains a meaningful tailwind given Windows 10 end-of-life, with Dell launching new entry-level commercial notebooks to win share in the PC market and expand total addressable market.
- Capital allocation and cash generation: Q2 cash flow remained robust, with $2.5B operating cash flow and continued strong shareholder returns (approx. $1.3B in capital returns in Q2 and $14.5B since FY23). Dell reiterated its commitment to modernization and cash flow generation.
- Outlook for AI-driven growth: Management reaffirmed that AI TAM is accelerating and expected to reach a larger scale, with a projection to double from $184B to $356B by 2028. The company is prioritizing profitable growth, AI server shipments, and enterprise AI factories with an emphasis on a balanced mix across AI and traditional offerings to support margin expansion.
"We had a strong operational execution in the second quarter with record AI shipments. Our revenue was a record $29.8 billion, up 19%. ISG and CSG were up 22%. Earnings per share increased by 19% to $2.32, marking a Q2 record."
— Jeffrey W. Clarke
"The 5-quarter pipeline continued to grow sequentially with double-digit growth across enterprise and sovereign opportunities. Enterprise orders and our buyer base grew sequentially in Q2, distributed across various industries... strong enterprise interest in our new NVIDIA RTX Pro 6000 AI Factory solutions."
— Paul Frantz (quoting Jeff Clarke during the transcript) / or could alternatively be attributed to Jeff Clarke as the primary AI pipeline speaker
Forward Guidance
Outlook and targets (as communicated in the Q2 FY2026 call):
- AI server shipments guidance raised to $20B for FY2026, with deliveries skewed toward the second half in some scenarios due to deployment timelines for large-scale data centers and sovereign as well as enterprise opportunities. Management noted the AI backlog and pipeline enable continued upside if conversion from pipeline accelerates.
- Q3 2026 guidance: Revenue between $26.5B and $27.5B (+11% mid-point) with ISG+CSG growth around mid-to-high teens; OpEx down in the low single digits; diluted non-GAAP EPS around $2.45 ± $0.10 (up ~11% at the midpoint).
- Full-year FY2026 guidance: Revenue $105B–$109B (midpoint $107B), up about 12%; ISG growth in the mid-to-high 20% range with traditional servers growth contributing; storage expected to be flat for the year; ISG+CSG combined growth around 14% at the midpoint; OpEx down low single digits; operating income up about 10%; I&O spending in the range of $1.4B–$1.5B; diluted non-GAAP EPS guidance raised to $9.55 ± $0.25, up roughly 17% at the midpoint.
- Strategic implications: The guidance reinforces a durable AI infrastructure cycle, supported by a scalable supply chain and a diversified mix that includes higher-margin Dell IP storage and enterprise services. Key factors for investors to monitor include AI backlog conversion rates, enterprise AI deployment velocity, supply chain costs, and the evolving mix between AI servers and traditional platforms, which will influence the trajectory of gross margins and operating margins in H2 FY2026.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DELL Focus
18.29%
N/A
N/A
N/A
HPQ
23.00%
8.17%
-66.30%
11.38%
NTAP
71.00%
20.80%
33.50%
20.37%
PSTG
70.70%
3.26%
2.45%
120.88%
SMCI
11.80%
6.49%
5.14%
14.08%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Dell Technologies is positioned to benefit from a secular AI infrastructure cycle, with a diversified, end-to-end model that combines leading AI hardware, software, and storage solutions. The Q2 results highlight strong AI demand, a healthy backlog and pipeline, and enterprise AI traction that supports durable revenue growth. While AI mix remains a near-term margin pressure, management guidance anticipates margin expansion through a shift toward higher-margin Dell IP storage and traditional server growth in the second half, complemented by ongoing cost efficiencies. The raised FY26 revenue and EPS targets reflect a constructive long-term outlook, supported by a sizable AI TAM expected to accelerate and a broad enterprise footprint. Key risk factors include AI deployment delays, supply chain costs, and the negative equity construct, which could limit financial flexibility in a cyclical downturn. Overall, the setup favors a constructive, moderately bullish view for DELL, contingent on continued AI backlog conversion, successful monetization of Dell IP, and sustained cash flow generation to support capital returns while deleveraging and stabilizing the balance sheet.
Key Investment Factors
Growth Potential
Significant AI infrastructure opportunity driven by enterprise AI factories, the NVIDIA Blackwell platform, and the expanding AI services/Networking attach opportunities. Dell's integrated model—comprising ISG hardware, CSG devices, VMware software, and Dell IP storage—positions the company to capture CAGR in AI infrastructure shipments and AI-enabled storage and services. The 5-quarter AI pipeline and 6 consecutive quarters of double-digit ISG growth underscore durable demand, with enterprise-led adoption expanding across financial services, healthcare, and manufacturing.
Profitability Risk
AI demand remains lumpy and execution-dependent given large-scale deployments and supply-chain transitions. Equipment lead times and buildings/power/cooling readiness create variability in revenue recognition. Storage and traditional server demand in North America showed softness in Q2, and federal/defense spend trends have historically impacted hardware cycle timing. Dell's negative equity position and elevated debt level pose balance-sheet headwinds, though the company maintains a 1.5x leverage target and strong cash flow; competitive intensity in AI hardware, HCI migrations, and potential macro shocks could impact profitability and share gains.
Financial Position
Solid cash flow generation with operating cash flow of $2.543B in Q2 and free cash flow of $1.869B; cash and investments of $9.8B; total debt $28.689B and net debt $20.544B; negative stockholders’ equity (-$2.766B) signaling past balance-sheet proximity to capital structure limits but offset by robust cash generation and capacity to service debt. Leverage is reported at the target 1.5x and the company continues to emphasize capital returns (dividends and buybacks) alongside ongoing modernization investments.
SWOT Analysis
Strengths
Comprehensive, integrated portfolio: ISG hardware, CSG devices, VMware software, and Dell IP storage create cross-sell opportunities and resilient revenue streams.
Leading AI infrastructure position: Record AI shipments and a sizable AI backlog/backlog of $11.7B with a multi-year pipeline; enterprise traction expanding across industries.
Dell IP storage margin upside: Progress in margin improvement for Dell IP storage and all-flash storage solutions, with Dell IP expected to outperform the market in the second half.
Strong cash generation and shareholder returns: Operating cash flow of $2.543B in Q2, $9.8B cash/investments, and a track record of buybacks and dividends totaling $14.5B since FY23.
Enterprise AI momentum: 8 straight quarters of quarter-over-quarter enterprise buyer growth and a balanced mix of new and returning customers.
Weaknesses
Negative stockholders’ equity on the balance sheet, indicating structural leverage and potential capital-structure risks.
Near-term margin pressure from AI mix, with traditional server and storage volatility in North America affecting ISG margins.
Cyclicality in PC refresh cycle and Windows end-of-life dependence creates near-term demand volatility in CSG.
High dependence on AI hardware cycle timing and supply-chain transitions (GB200/GB300 adoption and ongoing AI deployments).
Opportunities
Expansion of Dell Automation Platform and open, disaggregated architectures for HCI customers, potentially accelerating adoption and Dell IP monetization.
Windows end-of-life refresh driving PC market opportunity and cross-sell of enterprise AI capabilities with PCs as a distributed access layer.
Upside from enterprise AI factories and attached networking/services, enabling higher-margin cross-sell beyond hardware.
Increasing penetration of PowerStore and all-flash storage across新 and existing customers, leveraging Dell IP advantages.
Threats
AI market demand variability and supply-chain challenges could delay orders or impact margins.
Competition from other hyperscale hardware providers and traditional PC/server OEMs where price competition could weigh on ASPs.
Macroeconomic headwinds or change in federal/government IT spending could influence enterprise and public-sector demand.