"This quarter, we executed very well, achieving growth across our core markets and experiencing unprecedented demand for our AI-optimized servers. Our revenue reached $23.4 billion, up 5%, driven by growth across all of our core markets. ISG and CSG were up 8%." - Jeff Clarke
Dell Technologies Inc (DELL) QQ1 2026 Results Analysis: AI-Driven Growth, Backlog Expansion, and Margin Progress in a Dynamic AI and Tech Cycle
Executive Summary
Dell Technologies delivered a solid QQ1 2026 performance, underscored by a robust AI server demand cycle and a diversified revenue mix across ISG and CSG. Revenue rose 5% YoY to $23.38 billion, supported by double-digit growth in ISG and continued solid performance in storage and Dell IP. The AI narrative dominated the quarter, with $12.1 billion of AI server orders and a year-to-date pipeline that remains multiples of backlog, signaling a multi-quarter runway for AI deployments. Management reaffirmed full-year revenue guidance and raised non-GAAP EPS guidance, highlighting confidence in AI-driven growth and ongoing profitability improvements across segments. The quarter also delivered record cash generation, with $2.8 billion of operating cash flow and $2.23 billion in free cash flow, funding shareholder returns while preserving liquidity. However, the balance sheet shows elevated leverage and negative equity, reflecting a capital-intensive business with significant asset and debt levels that will require ongoing balance sheet discipline and optimization of capital structure. Looking ahead, the key investment thesis centers on Dell’s AI factories, expanded storage architecture (Dell IP), and ecosystem partnerships (NVIDIA, Google Gemini on-prem, Cohere), which collectively support a durable AI- and data-centric growth trajectory while macro volatility and competitive dynamics warrant ongoing vigilance.
Key Performance Indicators
Revenue
23.38B
QoQ: -2.31% | YoY:5.10%
Gross Profit
4.94B
21.12% margin
QoQ: -15.26% | YoY:2.73%
Operating Income
1.17B
QoQ: -49.50% | YoY:26.63%
Net Income
965.00M
QoQ: -41.66% | YoY:0.52%
EPS
1.39
QoQ: -36.82% | YoY:2.21%
Revenue Trend
Margin Analysis
Key Insights
Total revenue: $23.378 billion, up 5.10% YoY and -2.31% QoQ (per earnings metrics).
Gross profit: $4.937 billion, up 2.73% YoY but down 15.26% QoQ, gross margin 21.12% (vs. 21.18% prior-year).
Operating income: $1.165 billion, up 26.63% YoY, down 49.50% QoQ; operating margin 4.98% vs. 7.11% prior year QoQ changes reflect seasonality and mix.
Net income: $0.965 billion, up 0.52% YoY, down 41.66% QoQ; diluted EPS $1.39 (non-GAAP/GAAP reconciliation provided in deck).
EPS (diluted): $1.37-$1.55 guidance context; YoY EPS up 2.21%, QoQ down 36.82%.
Financial Highlights
Revenue and profitability
- Total revenue: $23.378 billion, up 5.10% YoY and -2.31% QoQ (per earnings metrics).
- Gross profit: $4.937 billion, up 2.73% YoY but down 15.26% QoQ, gross margin 21.12% (vs. 21.18% prior-year).
- Operating income: $1.165 billion, up 26.63% YoY, down 49.50% QoQ; operating margin 4.98% vs. 7.11% prior year QoQ changes reflect seasonality and mix.
- Net income: $0.965 billion, up 0.52% YoY, down 41.66% QoQ; diluted EPS $1.39 (non-GAAP/GAAP reconciliation provided in deck).
- EPS (diluted): $1.37-$1.55 guidance context; YoY EPS up 2.21%, QoQ down 36.82%.
Segment highlights
- ISG revenue: $10.3 billion, +12% YoY; Servers and Networking revenue record at $6.3 billion, +16% YoY. AI server orders: $12.1 billion; AI server shipments: $1.8 billion; ISG operating income: $1.0 billion, +36% YoY; ISG operating margin 9.7% (up ~170 bps YoY).
- CSG revenue: $12.5 billion, +5% YoY; Commercial revenue +9% YoY; Consumer revenue -19% YoY. CSG operating income: $0.7 billion, 5.2% of revenue.
Cash flow and liquidity
- Operating cash flow: $2.8 billion; free cash flow: $2.228 billion.
- Cash and investments: $9.3 billion; cash at end of period: $7.853 billion; debt levels remain elevated with total debt $28.781 billion and net debt $21.081 billion.
- Shareholder return: $2.4 billion returned via buybacks and dividends; total capital returned since FY2023: $13.2 billion.
Guidance and cadence
- FY2026 revenue guidance reiterated: $101-$105 billion, midpoint $103 billion, up 8% YoY; ISG to grow in the high-teens; AI server shipments expected >$15 billion for the year; combined ISG+CSG growth about 10% at the midpoint.
- Q2 guidance: revenue expected $28.5-$29.5 billion; diluted non-GAAP EPS $2.25 +/- $0.10; OpEx down low single digits YoY; ISG+CSG growth about 19% at the midpoint; Q2 AI server shipments targeted around $7 billion; ISG profitability anticipated to improve with AI mix and Dell IP storage contribution.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
23.38B
5.10%
-2.31%
Gross Profit
4.94B
2.73%
-15.26%
Operating Income
1.17B
26.63%
-49.50%
Net Income
965.00M
0.52%
-41.66%
EPS
1.39
2.21%
-36.82%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key insights from management discussions and quotes grouped by themes:
- AI strategy and execution: Jeff Clarke highlighted unprecedented demand for AI-optimized servers, stating, “This quarter, we executed very well... unprecedented demand for our AI-optimized servers,” and noted AI orders of $12.1 billion in Q1 with a 5-quarter pipeline that “remains multiples of our backlog.” He stressed the complexity and customization required for large deployments and the strong ecosystem with NVIDIA, AMD, Hugging Face, Cohere, Meta, Mistral, and Google. Yvonne McGill reinforced the AI investment theme, noting “record Q1 cash flow from operations” and expectations that AI profitability will drive margin expansion across ISG and storage.
- Backlog, pipeline, and near-term visibility: Jeff noted the backlog at $14.4 billion implied by the AI backlog commentary, with the five-quarter pipeline growing sequentially, and that the team is converting pipeline to backlog and revenue through a large number of enterprise deployments. He cautioned about the nonlinear and lumpier nature of AI demand, suggesting continued upside with execution. The Q1 call also emphasized that the five-quarter pipeline is “multiples of our backlog,” signaling substantial growth potential ahead.
- Margin and profitability dynamics: Yvonne emphasized gross margin of $5.1 billion (21.6% of revenue) and an operating income of $1.7 billion (7.1% of revenue) with gross margin pressure from pricing competition and geographic mix. She indicated ISG margin improvements (to ~9.7% in Q1) and noted that AI server profitability is a primary driver of gross margin dollar accretion and operating income growth throughout the year.
- Guidance and tariffs: The company affirmed full-year guidance and Teleftariffs discussion—a Bank of America analyst queried tariffs impact and the team confirmed that the guidance already incorporates tariffs as of today; Jeff stated, “Our guidance for the year and for Q2 includes everything that we know about tariffs as of today.”
- Capital allocation and balance sheet: Management highlighted a disciplined capital return program with $2.4 billion returned in Q1 and ongoing confidence in the business model, even as the balance sheet shows a high debt load and negative equity, with a core leverage of 1.6x. Yvonne called attention to continued modernization investments and evolving profitability mix to offset traditional server softness.
- Competitive dynamics and market conditions: The team described a competitive pricing environment, particularly in CSG, but noted ASPs for commercial PCs remained relatively stable and that Dell did not resort to price reductions in the period. They cited a broad and active ecosystem and ongoing AI factory-building efforts as differentiators in the AI-led demand cycle.
This quarter, we executed very well, achieving growth across our core markets and experiencing unprecedented demand for our AI-optimized servers. Our revenue reached $23.4 billion, up 5%, driven by growth across all of our core markets. ISG and CSG were up 8%.
— Jeff Clarke
We booked $12.1 billion in orders in the first quarter, surpassing the entirety of shipments in all of FY 2025. We shipped $1.8 billion, leaving us with a backlog of $400 million.
— Jeff Clarke
Forward Guidance
Dell maintains an optimistic yet measured outlook anchored in AI-led growth and strategic portfolio optimization. Key near-term drivers include:
- AI server demand and backlog conversion: Management guided to approximately $7 billion in AI server shipments in Q2, with the full-year AI server shipments expected to exceed $15 billion. The multi-quarter pipeline and sovereign opportunities (e.g., sovereign DOE win) underpin a durable AI growth path, albeit with acknowledged lumpiness and deployment delays tied to data-center and power readiness. Achievability hinges on sustained enterprise and sovereign demand, rapid deployment capabilities, and uninterrupted supply chain execution.
- ISG and CSG profitability mix: ISG is expected to grow at a high-teens rate for FY2026 with continued margin expansion driven by higher Dell IP storage mix and favorable mix shifts. CSG is expected to grow in the low-to-mid single digits, with PC refresh cycles supporting profitability sequentially in Q2 and beyond. OpEx is expected to be down low-single digits YoY, supporting improved operating income (guidance for FY26 operating income up ~9%).
- Full-year revenue target and EPS trajectory: Revenue guidance maintained at $101–$105 billion (midpoint $103B, +8% YoY). Diluted non-GAAP EPS guidance increased to $9.40 +/- $0.25, up ~15% at the midpoint. The company expects I&O to be in the range of $1.4–$1.5 billion for the year.
- Risks and watch points: Macro volatility, tariff dynamics, and customer mix in traditional servers and CSG components can influence margin progression. The AI backlog and five-quarter pipeline remain subject to supply chain constraints and deployment schedules. Investors should monitor AI server billings cadence, backlog conversion rates, and the evolution of Dell IP storage profitability as the company leans into Project Lightning and data-management platforms.
- Conclusion: The investment thesis rests on Dell’s AI leadership, diversified AI-enabled portfolio, and strong cash generation that funds shareholder returns while enabling continued AI factory expansion. Ongoing monitoring should focus on AI demand durability, backlog-to-revenue conversion, storage attach opportunities, and balance sheet optimization amidst a capital-intensive growth trajectory.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DELL Focus
21.12%
N/A
N/A
N/A
HPQ
21.00%
6.26%
-52.70%
13.63%
NTAP
71.30%
18.30%
26.70%
26.20%
PSTG
71.50%
-3.73%
-2.55%
-124.28%
SMCI
13.10%
8.58%
7.22%
14.46%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Dell’s QQ1 2026 results reinforce an AI-led growth framework underpinned by a diversified, multi-segment portfolio. The AI server backlog and five-quarter pipeline indicate durable demand, while management’s reaffirmation of FY2026 revenue guidance and elevated AI server shipment targets illustrate confidence in execution. The key catalysts include expanding AI deployments across enterprise, cloud, and sovereign customers, and higher-margin Dell IP storage and disaggregated storage solutions. Investors should monitor AI backlog conversion velocity, margin progression in ISG as AI mix grows, tariff developments, and the company’s ability to optimize capital structure while maintaining robust free cash flow. Overall, the outlook is constructive with a long-duration AI-led growth trajectory, subject to macro stability and execution cadence.
Key Investment Factors
Growth Potential
Dell’s AI factories, expanded storage portfolio (Dell IP), PowerStore growth, and the growing Dell Data Platform with Project Lightning position the company to monetize AI workloads across training and inference. The five-quarter AI pipeline, sovereign and enterprise deployments, and Google Gemini on-prem collaboration provide a multi-year growth runway beyond FY2026.
Profitability Risk
Key risks include macro demand volatility, potential further tariff implications, competitive pricing pressures in CSG, execution risk in converting AI pipeline to revenue, and a balance-sheet concentration of debt that may constrain near-term flexibility. AI demand could prove lumpy and dependent on data-center expansions and power/cooling readiness.
Financial Position
Solid operating cash flow in Q1 ($2.8B) supports a strong FCF ($2.23B) and a robust capital return program ($2.4B in a single quarter). However, balance sheet shows total liabilities of $89.893B vs. total assets of $86.869B and negative stockholders’ equity (-$3.024B), with total debt $28.781B and net debt $21.081B. Leverage is 1.6x core, and ongoing opportunities exist to optimize capital structure while funding AI investments.
SWOT Analysis
Strengths
Leading AI infrastructure offering with a broad ecosystem (NVIDIA, Google, Cohere, Meta, Mistral, etc.)
Large AI server backlog and five-quarter pipeline supporting near-term revenue visibility
Dell IP storage portfolio and disaggregated architectures with margin upside
Strong operating cash flow and record first-quarter cash generation
Weaknesses
Negative stockholders’ equity and elevated debt levels which constrain balance-sheet flexibility
ISG traditional server and storage profitability pressures in a competitive pricing environment
Consumer PC demand weakness impacting overall CSG profitability
Opportunities
Expansion of AI data platforms, Project Lightning, and on-prem Gemini collaboration with Google
Attach opportunities for storage and networking to AI servers, improving overall margin mix
Growing enterprise AI deployments and sovereign opportunities expanding addressable market
Threats
Macro economic volatility and potential tariff escalations affecting component costs
AI deployment timing risk and lumpiness in orders, especially in large-scale projects
Competitive dynamics in PC and traditional server markets could pressure margins