Dell Technologies (DELL) delivered its strongest quarter on record, fueled by booming demand for artificial intelligence servers.
Revenue for the fiscal second quarter jumped 19% year over year to $29.8 billion, outpacing expectations of $29 billion. Adjusted earnings of $2.32 a share also topped estimates. Cash flow from operations nearly doubled to $2.5 billion, a sign of strong execution.
The company’s Infrastructure Solutions Group, which houses server and networking products, was the clear standout. Revenue surged 44% to $16.8 billion, driven by a 69% jump in servers and networking. Dell shipped $8.2 billion worth of AI servers during the quarter, already surpassing last year’s full-year total. Backlog remained hefty at $11.7 billion, though lower than the $14.4 billion reported in the prior quarter.
Margins Under Pressure as AI Demand Ramps
Despite record sales, shares of Dell slid as much as 11% following the results—the steepest intraday drop in nearly five months. Investors focused on falling profit margins and softer-than-expected guidance for the current quarter.
Dell’s adjusted gross margin narrowed to 18.7%, down from 22.4% a year earlier and below analyst forecasts of 19.6%. The infrastructure unit’s operating margin also came in lighter, at 8.8% versus expectations of 10.3%. Management attributed the squeeze to competitive pricing, higher supply chain expenses, and the costly processors required to build AI servers.
While demand is still described as “exceptional,” the shift toward AI infrastructure has introduced near-term profitability challenges. The backlog decline added to concerns that Dell’s AI order momentum may be moderating after a rapid surge.
Despite record sales, shares of Dell slid as much as 11% following the results—the steepest intraday drop in nearly five months. Investors focused on falling profit margins and softer-than-expected guidance for the current quarter.
Dell’s adjusted gross margin narrowed to 18.7%, down from 22.4% a year earlier and below analyst forecasts of 19.6%. The infrastructure unit’s operating margin also came in lighter, at 8.8% versus expectations of 10.3%. Management attributed the squeeze to competitive pricing, higher supply chain expenses, and the costly processors required to build AI servers.
While demand is still described as “exceptional,” the shift toward AI infrastructure has introduced near-term profitability challenges. The backlog decline added to concerns that Dell’s AI order momentum may be moderating after a rapid surge.
Higher AI Shipments, Mixed Investor Sentiment
Looking ahead, Dell raised its AI server shipment guidance for fiscal 2026 to $20 billion, up from a prior target of $15 billion. In the first half of the fiscal year alone, the company shipped $10 billion worth of AI solutions—already surpassing all of fiscal 2025. Management also raised its annual sales projection to about $107 billion and expects full-year adjusted earnings of roughly $9.55 a share, both ahead of prior guidance.
Still, third-quarter earnings guidance landed slightly below consensus. Dell projects adjusted EPS around $2.45 at the midpoint, compared with analyst expectations of $2.55. The company’s PC business also underwhelmed, with Client Solutions Group revenue of $12.5 billion falling short of Wall Street forecasts and lagging rival HP (HPQ), which reported stronger PC demand.
Conclusion
Dell is proving itself as a heavyweight in AI infrastructure, shipping record volumes of servers and sharply boosting its full-year outlook. Yet, as the company scales this high-growth business, thinner margins and a slowdown in backlog are giving investors pause. For now, the story remains one of balancing explosive AI-driven demand with profitability—an equation that will determine the stock’s next move.
Dell is proving itself as a heavyweight in AI infrastructure, shipping record volumes of servers and sharply boosting its full-year outlook. Yet, as the company scales this high-growth business, thinner margins and a slowdown in backlog are giving investors pause. For now, the story remains one of balancing explosive AI-driven demand with profitability—an equation that will determine the stock’s next move.
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