Dell Technologies Inc. Q2 FY2026 earnings call

• Strong operational execution in Q2 with record AI shipments. Revenue was a record $29.8 billion, up 19%. EPS increased by 19% to $2.32. - AI remains a significant tailwind: booked $5.6 billion in orders and shipped $8.2 billion in Q2, with backlog at $11.7 billion. Pipeline continued to grow with double-digit growth across enterprise and sovereign opportunities. - ISG had record revenue, with servers and networking up 69%, and storage saw PowerStore's double-digit growth. - CSG momentum continued but not at expected pace; commercial up 2%, consumer down 7% but profitability improved. - Modernization work driving internal efficiencies, with operating expenses down 4% while investing in R&D. - PC refresh opportunity with Windows 10 end of life in 48 days, and new business notebook launched to win entry-level commercial PC market.

In the second quarter, Dell Technologies achieved record revenue of $29.8 billion, up 19%. ISG (Integrated Systems Group) revenue was a record $16.8 billion, up 44%, with servers and networking revenue at a record $12.9 billion, up 69%. AI shipments were record, with $5.6 billion in orders and $8.2 billion shipped in Q2, ending backlog at $11.7 billion. Storage revenue was down 3% to $3.9 billion, but PowerStore had double-digit growth for 6 consecutive quarters. CSG (Client Solutions Group) revenue was up 1% to $12.5 billion, with commercial up 2% and consumer down 7% but profitability improved. ISG and CSG combined grew 22%. Gross margin was $5.6 billion or 18.7% of revenue, operating expense down 4% to $3.3 billion, operating income up 10% to $2.3 billion, net income up 13%, and EPS up 19% to $2.32.

• Raised AI server shipment guidance to $20 billion from prior $15 billion. - Q3 revenue expected between $26.5 billion and $27.5 billion, up 11% at midpoint $27 billion. ISG and CSG combined expected to grow 13% at midpoint. - Full year FY '26 revenue expected $105-$109 billion, midpoint $107 billion, up 12%. ISG to grow mid-to-high 20s, storage flat, CSG low-to-mid single digits. - Operating income expected up roughly 7%, diluted non-GAAP EPS guidance increased to $9.55, plus or minus $0.25, up 17% at midpoint.

• Forward-looking statements based on current expectations, actual results could differ due to various risks and uncertainties discussed in SEC filings. - Supply chain complexities for large-scale AI deployments, including scheduled deliveries dependent on infrastructure readiness. - Geopolitical impacts and supply chain reconfigurations affecting costs and margins. - HCI customers' decision-making process affecting storage business performance.

Q: Aaron Rakers from Wells Fargo asked about the ability to flex upward on AI shipment guidance and continued upside.

A: Jeff Clarke responded that AI demand continues to come in lumpy, pipeline is large, and they aim to convert pipeline into orders, expecting to run through $20 billion and beyond.

Q: Wamsi Mohan from Bank of America inquired about profit flow-through improvement.

A: Yvonne McGill said CSG expected to be slightly higher in second half, AI servers balanced, and storage expected to perform better sequentially with improved margins.

Q: Erik Woodring from Morgan Stanley asked about storage market change.

A: Jeff Clarke stated storage saw slower demand in large accounts, but Dell IP storage portfolio grows, and they're providing an open disaggregated alternative with automation platform.

Q: Ben Reitzes from Melius Research asked about AI margins improving.

A: Jeffrey W. Clarke explained margin improvement due to business mix change, recovery in North America servers, and improved storage margins, with AI revenue being gross dollar accretive but rate dilutive in Q2.

Q: Vijay Rakesh from Mizuho asked about pipeline mix and AI margin upside.

A: Jeffrey W. Clarke said pipeline had double-digit growth in sovereign and enterprise, and margins expected to improve through value engineering and scaling of business.

Q: David Vogt from UBS asked about traditional server and storage profitability.

A: Jeffrey W. Clarke mentioned North America traditional server demand challenge, federal spending impact, and Dell IP storage portfolio's margin-rich nature. Yvonne McGill added gross margin rate affected by mix and input costs but guiding strong EPS growth.

Q: Amit Daryanani from Evercore asked about AI margin conversion.

A: Yvonne McGill said second half seasonality, storage mix, and AI margin improvement contribute to profitability guide.

Q: Michael Yang from Goldman Sachs asked about traditional server and storage performance.

A: Jeffrey W. Clarke noted North America traditional server demand slowness, federal spending impact, and server consolidation opportunity. Yvonne McGill added gross margin affected by mix and input costs.

Q: Simon Leopold from Raymond James asked about enterprise AI traction.

A: Jeffrey W. Clarke said enterprise AI demand up, buyer base growing, mix of new and returning customers, and POCs converting to production increasing.

Q: Samik Chatterjee from JPMorgan asked about AI server backlog and GB300 mix.

A: Jeffrey W. Clarke said backlog and pipeline primarily Blackwell, transition to GB300 ongoing, and deployment cycle time quick.

Q: Asiya Merchant from Citi asked about PC back half confidence.

A: Jeffrey W. Clarke said Windows 10 end of life provides refresh opportunity, focus on outperforming market and taking share, with new business notebook launched.

Q: Mehdi Hosseini from SIG asked about gross margin improvement drivers.

A: Yvonne McGill said second half seasonality, storage mix, AI margin improvement, and traditional server growth contribute. Jeffrey W. Clarke mentioned efforts to scale services but focus on profitable growth across portfolio.

Q: Krish Sankar from Goldman Sachs asked about AI server mix and EPS raise.

A: Jeffrey W. Clarke said backlog biased towards direct liquid cooling and GB200/GB300. Yvonne McGill said additional AI revenue and traditional server/storage contribution drive EPS increase.

Q: Steven Fox from Fox Advisors asked about supply chain dynamics.

A: Jeffrey W. Clarke said deflationary input costs in Q2 expected to flatten, supply chain agile, and one-time expedite costs for GB200 in Q2 not expected in Q3/Q4