Dell Technologies Inc (DELL) Q2 2025 Earnings Report

- Revenue: $25.026B in Q2 FY2025, up 9% YoY; QoQ growth ~12.5% (Q1’FY25 was $22.244B).
- Gross Profit: $5.311B; gross margin 21.8% (down ~230 bps YoY due to AI server mix and pricing environment).
- Operating Income: $2.142B; operating margin 8.1% (up ~300 bps QoQ; benefited from higher revenue and favorable mix, offset by margin headwinds in the VMware-exit period).
- Net Income: $0.846B; net income margin 3.38% (YoY and QoQ declines reflect non-operating items and the VMware-related mix; management cited non-GAAP adjustments on the call).
- Diluted EPS (GAAP): $1.17; Earnings per share (reported) $1.19. Non-GAAP diluted EPS guided for Q3: $2.00 ± $0.10; FY25 target: $7.80 ± $0.25 (midpoint $7.80, up ~9%).
- Cash Flow: CFO $1.34B; capex $0.682B; free cash flow $0.658B; cash at period end about $4.57B; net debt ~ $19.97B after debt paydown of $1.0B and capital returns of $1.0B in the quarter.
- Backlog & Pipeline: AI server backlog $3.8B; AI server shipments $3.1B in Q2; five-quarter pipeline is a multiple of backlog and shows durable demand from Tier-2 CSPs and enterprise customers.
- Segment Highlights: ISG revenue $11.6B (+38% YoY; server & networking $7.7B, +80%); storage $4.0B (-5% YoY); CSG revenue $12.4B (-4% YoY); DFS originations $2.4B (+5%).
- Guidance Highlights: FY25 revenue guidance $95.5–$98.5B (midpoint $97.0B); ISG growth ~30%; CSG flat to up low-single digits; ISG+CSG combined growth ~13%. FY25 gross margin to decline ~180 bps; operating expenses down low-single digits; Q3 revenue guide $24.0–$25.0B (midpoint $24.5B); Q3 Diluted non-GAAP EPS ~ $2.00 ± $0.10.

- AI momentum and pipeline expansion: Dell stressed that AI server orders and shipments grew again and that the AI server backlog remained healthy at $3.8B, with a pipeline that has grown to several multiples of the backlog. Jeff Clarke emphasized the expanding AI pipeline across Tier-2 CSPs and enterprise customers, with a five-quarter pipeline and a backlog that remains a fraction of the pipeline in terms of opportunity. “We shipped $3.1 billion of AI servers in Q2. As we exited the quarter, our AI server backlog remains healthy at $3.8 billion. Most exciting, our AI server pipeline expanded across both Tier-2 CSPs and enterprise customers again in Q2, and now has grown to several multiples of our backlog.”
- Margin dynamics and AI mix: Yvonne highlighted that gross margin was 21.8% (down 230 bps year over year) largely due to higher AI-optimized server mix and a more competitive pricing environment. ISG operating margin rose by 300 bps sequentially to 11% driven by AI server revenue growth and storage profitability, with expectations to finish FY25 within the 11–14% band. Jeff added that margins in AI are improving through price discipline and expanded value-add services (L11/L12), including rack-level deployment and network integration, which enhances profitability relative to “the box” only. “In the traditional server space, demand environment continued to improve… in AI servers, we had strong shipments with improved profitability and growing enterprise customers in that portfolio mix.”
- VMware exit and cost actions: The company noted the VMware resale business exit contributed to gross margin headwinds, and Dell took a $328 million workforce-reduction charge in Q2 as part of ongoing cost-structure optimization driven by AI-enabled processes. Yvonne stated: “a big part of this optimization effort is leveraging AI to reimagine our business processes and drive higher productivity… in Q2, we took a $328 million charge for workforce reduction.”
- Guidance cadence and AI TAM: Dell’s AI TAM grew to $174B from $152B, implying a 22% CAGR, with the firm signaling ongoing momentum into the second half of FY25 and beyond, acknowledging that “Progress will not always be linear in the early stages, but we are winning in the market.” The five-quarter pipeline and the enterprise adoption trajectory (more pilots moving toward scale) underpin this view. “We are very optimistic about FY ’25 and beyond. AI and the coming IT hardware refresh cycle will be tailwinds for our business.”

Dell’s near-term earnings trajectory hinges on converting the sizable AI-oriented pipeline into actual shipments while managing gross margin headwinds from the VMware exit and AI mix. The company’s strategic emphasis on AI-enabled hardware, software, and services—coupled with improved AI server profitability through rack-level value adds—supports a constructive longer-term view. However, investors should monitor GPU supply dynamics, the cadence of the PC refresh cycle, and the progress of sovereign AI opportunities, which could influence mix and pricing power. Given a 10% FY25 revenue growth target, ISG margin expansion potential toward the 11–14% band, and a growing AI services stack, the investment thesis remains favorable for exposure to AI-driven IT infrastructure upgrades, with a need to closely track margin recovery and free cash flow generation as the AI transition matures.