Dell Technologies Inc. (NYSE: DELL)

Dell Technologies delivered impressive first quarter fiscal 2026 results, with total revenue increasing 5% year-over-year to $23.4 billion. The company demonstrated strong operational leverage, with operating income surging 21% to $1.2 billion despite the modest revenue growth. Non-GAAP operating income grew 10% to $1.7 billion, reflecting the company's focus on operational efficiency and margin expansion.

A standout achievement was the record quarterly cash flow from operations of $2.8 billion, representing a remarkable 168% increase year-over-year. This exceptional cash generation enabled Dell to return a record $2.4 billion to shareholders through share repurchases and dividends, more than doubling the quarterly average since the company began its capital allocation program in fiscal 2023.

While diluted EPS remained flat at $1.37, non-GAAP diluted EPS increased 17% to $1.55, demonstrating strong underlying profitability. The difference between GAAP and non-GAAP metrics primarily reflects the impact of stock-based compensation, amortization of intangibles, and other corporate expenses that don't reflect the company's core operational performance.

The company's gross margin remained relatively stable at 21.1% compared to 21.8% in the prior year period. Operating expenses as a percentage of revenue improved to 16.1% from 17.5%, contributing to the strong operating leverage. The effective tax rate was notably low at 10.9% compared to a negative 67.6% in the prior year, primarily due to various tax adjustments and benefits.

Dell's strong financial performance was underpinned by robust demand across its core businesses, with all business segments achieving growth. The company's ability to generate substantial cash flow while investing in growth initiatives positions it well for continued market share expansion and shareholder value creation.

Infrastructure Solutions Group (ISG) delivered exceptional performance with revenue growing 12% year-over-year to $10.3 billion. The segment achieved record first-quarter servers and networking revenue of $6.3 billion, up 16% year-over-year, driven by unprecedented demand for AI-optimized servers. Storage revenue grew a solid 6% to $4.0 billion, reflecting continued enterprise modernization efforts.

ISG's operating income surged 36% to $998 million, with operating margin expanding to 9.7% from 8.0% in the prior year. This margin expansion demonstrates Dell's ability to capture value from its AI solutions and optimize its product mix toward higher-margin offerings. The segment now represents 60% of total reportable segment operating income, up from 49% in the prior year.

Client Solutions Group (CSG) showed steady growth with revenue increasing 5% year-over-year to $12.5 billion. Commercial client revenue performed particularly well, growing 9% to $11.0 billion, driven by continued demand for business productivity solutions and hybrid work technologies. However, consumer revenue declined 19% to $1.5 billion, reflecting broader consumer discretionary spending pressures.

CSG's operating income decreased 16% to $653 million, with operating margin compressing to 5.2% from 6.5% in the prior year. This decline was primarily attributed to the consumer revenue weakness and competitive pricing pressures in certain commercial segments. Despite this pressure, CSG maintained solid profitability and continues to benefit from secular trends toward digital transformation.

The standout story of the quarter was Dell's AI server business, which generated $12.1 billion in orders, surpassing the entirety of AI shipments in all of fiscal 2025. This massive order intake has created a substantial $14.4 billion AI backlog, positioning Dell to benefit from the continued AI infrastructure buildout across enterprises and hyperscale customers.

Dell's leadership in AI infrastructure became the defining story of Q1 FY2026, with the company experiencing unprecedented demand that significantly exceeded expectations:

AI Infrastructure Dominance

• Record AI Orders: $12.1 billion in AI orders during Q1 alone, surpassing the entire fiscal 2025 AI shipment volume
• Substantial Backlog: $14.4 billion in AI order backlog provides strong revenue visibility for future quarters
• Technology Leadership: AI-optimized servers designed for enterprise and hyperscale deployments across multiple AI workloads
• Market Position: Strengthened competitive position in the rapidly expanding AI infrastructure market

The company's AI solutions portfolio spans the full spectrum of AI infrastructure needs, from edge computing to large-scale data center deployments. Dell's partnerships with leading chip manufacturers and software providers have positioned it as a preferred supplier for organizations implementing AI initiatives.

Operational Excellence

Dell continued to demonstrate operational discipline while scaling to meet unprecedented AI demand:

• Enhanced manufacturing capacity to support AI server production
• Optimized supply chain management to handle component constraints
• Maintained quality standards while significantly increasing production volumes
• Improved operational leverage, with non-GAAP EPS growing three times faster than revenue

The company's ability to efficiently scale operations while maintaining profitability demonstrates the strength of its operational model and supply chain capabilities. This operational excellence will be critical as Dell works through its substantial AI backlog in the coming quarters.

Capital Allocation Strategy

Dell's strong cash generation enabled aggressive shareholder returns while maintaining investment flexibility:

• Record quarterly shareholder returns of $2.4 billion through repurchases and dividends
• More than doubled the quarterly average since beginning capital allocation program in FY23
• Maintained financial flexibility for growth investments and potential acquisitions
• Demonstrated commitment to returning excess cash to shareholders

Dell provided strong guidance for fiscal 2026, reflecting confidence in its AI momentum and core business performance:

Full-Year Fiscal 2026 Guidance

• Revenue expected between $101.0 billion and $105.0 billion, representing 8% growth year-over-year at the midpoint of $103.0 billion
• GAAP diluted EPS expected to be $7.99 at the midpoint, up 25% year-over-year
• Non-GAAP diluted EPS expected to be $9.40 at the midpoint, up 15% year-over-year
• Guidance reflects strong AI demand visibility and continued core business growth

Second Quarter Fiscal 2026 Guidance

• Revenue expected between $28.5 billion and $29.5 billion, up 16% year-over-year at the midpoint of $29.0 billion
• GAAP diluted EPS expected to be $1.85 at the midpoint, up 50% year-over-year
• Non-GAAP diluted EPS expected to be $2.25 at the midpoint, up 15% year-over-year
• Sequential acceleration reflects AI order fulfillment and seasonal business patterns

The guidance reflects Dell's confidence in its ability to execute on its substantial AI backlog while maintaining growth in its core infrastructure and client businesses. The significant sequential revenue acceleration from Q1 to Q2 demonstrates the company's production ramp capabilities and the strength of customer demand.

Management emphasized that the AI opportunity extends beyond the current order cycle, with enterprise AI adoption still in its early stages. Dell's position as a trusted infrastructure partner for AI deployments provides multiple years of growth visibility as organizations continue to modernize their computing infrastructure for AI workloads.

The company also highlighted its focus on margin expansion through product mix optimization and operational efficiency improvements. The substantial AI backlog provides pricing power and production volume benefits that should support continued margin improvement throughout fiscal 2026.