tapebrief
DELL · Q1 2026

DELL · Q2 2026 Earnings

Bullish

Dell Technologies

Reported August 28, 2025

30-second summary

Dell shipped a record $8.2B of AI servers, beat its Q2 revenue guide ($29.78B vs. $28.5–29.5B), and — reversing last quarter's conspicuous reiteration — raised FY2026 revenue by $4B to a $107B midpoint and AI server shipments from ">$15B" to $20B (+$5B / +33%). Non-GAAP gross margin compressed to 18.7% (from 22.0% in the prior-year quarter, -330bps) on AI mix and one-time supply-chain expedite costs, but management explicitly mapped the margin recovery path through H2 via Dell IP storage mix, value engineering, and non-recurring Blackwell ramp costs. Q2 added $6.5B of QoQ revenue and ~$500M of QoQ operating income — gross-dollar accretive, rate-dilutive. The Q1 "AI substitutes for non-AI" worry has been answered: AI is now additive.

Headline numbers

EPS

Q2 FY2026

$2.32

Revenue

Q2 FY2026

$29.78B

+19.0% YoY

Gross margin

Q2 FY2026

18.3%

Free cash flow

Q2 FY2026

$1.87B

Operating margin

Q2 FY2026

6.0%

Key financials

Q2 FY2026
MetricQ2 FY2026YoYQ1 FY2026QoQ
Revenue$29.78B+19.0%$23.38B+27.4%
EPS$2.32—$1.55+49.7%
Gross margin18.3%—21.1%-280bps
Operating margin6.0%—5.0%+100bps
Free cash flow$1.87B—$2.23B-16.2%

Guidance

Strong Q2 beat and substantial FY26 guidance raise: revenue midpoint up $4B to $107B (+12% YoY), AI server shipments raised to $20B, and non-GAAP EPS midpoint raised to $9.55 (+17% YoY).

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

MetricPeriodPrior guideActualΔResult
RevenueQ2 FY2026$28.5B–$29.5B$29.776B+$0.276B above guide high endBeat
Non-GAAP EPSQ2 FY2026$2.15–$2.35$2.32in-line with guide (within range, near high end)Beat

New guidance

MetricPeriodGuideYoY
RevenueQ3 FY2026$26.5B–$27.5B (midpoint $27.0B)11% at midpoint
Non-GAAP EPSQ3 FY2026$2.35–$2.55 (midpoint $2.45)11% at midpoint
ISG Operating MarginFY2026expanding to mid 20s% growth range—

Changes to prior guidance

MetricPeriodPrior guideNew guideΔResult
Revenue
FY2026
$101.0B–$105.0B (midpoint $103.0B)$105.0B–$109.0B (midpoint $107.0B)+$4.0B midpoint; range widened +$4.0B high, +$4.0B lowRaised
Non-GAAP EPS
FY2026
$9.15–$9.65 (midpoint $9.40)$9.30–$9.80 (midpoint $9.55)+$0.15 midpoint; range shifted +$0.15 high, +$0.15 lowRaised
AI Server Shipments
FY2026
>$15 billion$20 billion+$5.0B (from >$15B to $20B)Raised

Product revenue

Q2 FY2026
SegmentQ2 FY2026YoY
Servers and Networking$12.944B+69.0%
Storage$3.856B-3.0%
Commercial Client$10.781B+2.0%
Consumer$1.722B-7.0%

Management tone

Q1 anchor: "AI orders eclipse FY25 shipments, but reiterate guidance" → Q2 anchor: "Raise top-line and lift AI ship target by a third, map margin recovery"

The single biggest tone shift is from defensive reiteration to confident raise. Last quarter Dell explicitly refused to lift FY2026 against $12.1B in AI orders, citing "sub-seasonal performance in traditional server and storage." This quarter, with another $5.6B in AI orders and $8.2B shipped, management raised FY2026 revenue by $4B and lifted AI shipment guidance by $5B to $20B. The anchoring quote from this call: "We have shipped more AI servers in the first half of this year than all of last." Translation: management now has the demand visibility — and the supply-chain confidence — to commit to numbers it wouldn't underwrite 90 days ago.

AI margin narrative has graduated from "trust us" to a quantified bridge. Q1 framed AI margin as gross-dollar accretive without specifics; this quarter, in response to Ben Reitzes (Melius Research), Jeff broke it into discrete drivers: Q2 added $6.5B of QoQ revenue and ~$500M of QoQ operating income (a total-company step, not AI-only), with one-time Blackwell expedite/reconfiguration costs that don't repeat in Q3/Q4, plus value engineering and enterprise attach (networking, storage, services) layering in. The anchor: "Our execution, value add through engineering, and ability to Dell design and even Dell manufacturing components within our at-scale data center solutions drive margin rate improvement within AI." This is the first time Dell has framed itself as an integrated solution provider rather than a hardware reseller in the AI context.

The storage narrative shifted from "modest pressure" to "stabilizing with margin expansion path". Last quarter, storage grew with a Dell-IP-mix framing; this quarter, storage was down 3%, but management responded to Eric Woodring (Morgan Stanley) with specific evidence of bright spots — PowerStore up six consecutive quarters (five double-digit), all-flash double-digit growth — and guided storage to outperform in H2 driven by Q4 seasonality and Dell IP mix. The reframing matters: storage is no longer a problem, it's a deliberate mix-up.

Enterprise AI quantification finally arrived. Q1's enterprise pipeline commentary was directional ("growing faster than CSP"). This quarter, Simon Leopold (Raymond James) extracted concrete color: eight consecutive quarters of QoQ buyer-base growth, 50/50 new-vs-returning customer mix, "the most enterprise revenue generated in a quarter to date," and the largest single enterprise AI demand quarter to date. Still not dollar-quantified, but the customer-count framing answers Q1's most-watched structural question.

The Windows 10 EOL framing tightened from "tailwind" to "tactical execution". Last quarter: refresh as macro setup. This quarter, with EOL 48 days out: "just this morning, we launched a new business notebook specifically designed to win the entry-level commercial PC market." Commercial Client grew 2% — modest, but the tone says management is executing into the window, not just waiting for it.

Recurring themes management leaned on this quarter:

AI server execution and speed-to-market as core differentiatorMargin expansion pathway through AI engineering integration and Dell IP mixStructural demand tailwinds: server refresh cycle (70% on older generations), Windows 10 EOL, AI infrastructureOperational leverage through modernization decoupling OpEx from revenue growthEnterprise AI democratization across vertical markets (financial services, healthcare, manufacturing)Capital returns and cash generation acceleration

Risks management surfaced:

North America traditional server demand weakness persisting into H2Storage demand moderation continuingCSG momentum slower than expected despite refresh tailwindMix shift to lower-margin AI servers impacting near-term gross margin rateExecution risk on PC refresh penetration and commercial market share gains

Q&A highlights

Aaron Rakers · Wells Fargo

Given the $20B+ AI revenue target (up from $15B) and $8.2B Q2 revenue, what is Dell's capacity to flex upward and achieve continued upside beyond $20B?

Jeff acknowledged the raise from $15B to $20B guidance and detailed that Dell shipped $10B of AI infrastructure in H1 (with $17.7B sold). He emphasized the pipeline growth, complexity of large-scale deployments dependent on infrastructure readiness, and noted demand is lumpy and nonlinear. Management stated they have adequate capacity and intend to convert the pipeline into orders, targeting $20B+ with potential upside.

$17.7 billion AI infrastructure sold in first half$10 billion shipped in first half, implying ~$10 billion in second halfFive-quarter pipeline continues to growSovereign and enterprise pipeline opportunities grew double digits

Wamsi Mohan · Bank of America

Profit flow-through appears to improve significantly in Q4 vs Q3; what are the components driving profitability improvement in the second half and Q4 specifically?

Yvonne Xie explained that CSG will be slightly higher in H2 vs H1 with focus on execution and profitability. AI servers expected to be balanced between H1 and H2 at ~$10B with improved margin rates. Storage expected to perform better in H2 with more Dell IP and normal seasonal Q4 acceleration, which is the primary driver of Q4 profitability. Traditional servers expected to grow, and OpEx expected to decline.

CSG expected slightly higher in second half vs first halfAI servers balanced at approximately $10 billion in second halfStorage seasonality weighted heavily into Q4More Dell IP in storage mix drives margin expansion

Eric Woodring · Morgan Stanley

Storage revenue down 3%, now guiding flat vs prior expectation of +3% growth. What changed in the storage market over the last 90 days?

Jeff explained that large account demand was slower in months 2-3 of Q2, particularly in North America. However, bright spots include power storage (6 consecutive quarters of growth, 5 double-digit) and all-flash portfolio (double-digit growth). Q3 guidance suggests better-than-normal sequentials. Dell IP storage expected to outperform marketplace. HCI customers reassessing private cloud strategies, addressed by new Dell automation platform announcement.

Storage revenue down 3% in Q2Power storage: 6 consecutive quarters growth, 5 double-digitAll-flash portfolio: double-digit growthQ3 guidance implies better-than-normal sequential growth

Ben Reitzes · Mellius Research

AI server margins appear to be low single digits; why will they improve and by how much? What is the magnitude of improvement by Q4 or long-term?

Jeff addressed two key drivers: (1) business mix—Q2 AI servers were nearly 50% of ISG, diluting overall margins; H2 will show recovery in profitable North America servers and improved storage margins, improving overall mix; (2) AI-specific margin expansion from value engineering, scaling, one-time Q2 supply chain costs (expediting/reconfiguration) not repeating, and expanding enterprise customer base with attach opportunities for networking, storage, and services.

Q2: $6.5 billion incremental AI revenue, nearly $500 million incremental operating incomeAI servers: gross dollar accretive, rate dilutiveQ2 included aggressive/competitive Blackwell dealsOne-time Q2 supply chain expedite costs not expected in Q3/Q4

Simon Leopold · Raymond James

Provide quantification on enterprise AI progress mentioned earlier. Is NVIDIA's sequential Hopper growth related to enterprise traction or something different?

Jeff provided significant color on enterprise: Q2 demand was up significantly and measurable; highest number of customers sold to in a quarter; most revenue generated to enterprise in a quarter to date. Eight consecutive quarters of QoQ buyer base growth; 50% new, 50% returning customers across multiple segments (tech, manufacturing, finance, engineering, higher ed, healthcare). POCs and POC-to-production conversion both increasing. Customers achieving ROI on AI investments. Regarding NVIDIA Hopper: many enterprises lack readiness for newer tech (power density requirements); Hopper and RTX 6000 being deployed in existing data centers, indicating enterprises are buying/deploying AI in current infrastructure.

Q2 enterprise AI demand up significantly (unquantified percentage)Single largest number of customers sold to in a quarterMost enterprise revenue generated in a quarter to dateEight consecutive quarters of QoQ buyer base growth

Answers to last quarter's watch list

Did the Q2 $7B AI ship target convert, or did Blackwell readiness push slippage to Q3? Dell shipped $8.2B in Q2 — $1.2B above the $7B guide — and called out one-time Blackwell expedite costs as evidence the ramp was executed aggressively, not deferred. The FY2026 AI ship target was raised to $20B with shipments "slightly weighted to Q3.".
Resolved positively
Did gross margin stabilize or keep compressing? Non-GAAP gross margin compressed to 18.7% — 330bps below the prior-year Q2 of 22.0% — on AI mix (~50% of ISG) plus one-time Blackwell supply-chain expedite costs. Management mapped specific recovery levers (Dell IP storage mix, value engineering, non-recurring expedite costs, Q4 storage seasonality) and guided AI margin rates to improve in H2. The compression is real; the recovery thesis is now quantified rather than asserted.
Resolved negatively
Did the enterprise share of the AI pipeline keep growing faster than CSP? Enterprise pipeline grew double digits per management; eight consecutive quarters of QoQ buyer-base growth; Q2 was the largest enterprise quarter ever by both customer count and revenue.
Resolved positively
Traditional server and storage YoY in Q2. Storage came in -3% (confirming the deceleration management warned about); traditional servers within Servers & Networking grew, with management guiding mid-to-high 20s ISG growth for FY2026 driven by both AI and traditional servers. Mixed: storage worse than feared, traditional servers better.
Continue monitoring
Whether management raises FY2026 revenue at Q2. Yes — FY2026 revenue midpoint raised $4B to $107B (+12% YoY vs. prior +8%); EPS midpoint to $9.55 (+17% YoY vs. prior +15%); AI ship target raised to $20B. The Q1 "AI substitutes for non-AI" concern is invalidated — AI is now additive.
Resolved positively

What to watch into next quarter

Does gross margin recover in Q3, or does the AI dilution prove structural? Management explicitly committed AI margin rates improve in H2 as Blackwell expedite costs roll off. A third consecutive quarter of compression would call the entire FY2026 EPS bridge into question.

Does Q3 AI server shipments come in at or above $10B? Management said FY2026 AI ships of $20B are "slightly weighted to Q3" — implying Q3 above the H2 average of $10B. Anything materially below would suggest the $20B target depends on Q4 lumpiness.

Does storage return to growth in Q3 or remain negative? Management is guiding storage to outperform in H2 on Dell IP mix and Q4 seasonality. Another quarter of -3% or worse breaks the "stabilizing" narrative.

Does ISG operating margin recover toward Q1's ~9.4% or stay near Q2's 8.8%? This is the cleanest single metric for whether the AI mix dilution thesis is being offset by traditional server profit recovery.

Does management quantify enterprise AI revenue (dollars, not customer count)? Three consecutive quarters of qualitative enterprise color without a dollar disclosure suggests either the absolute number is still small relative to CSP, or management is deliberately withholding. A dollar number on the Q3 call would be the cleanest derisking event left.

Sources

  1. Dell Technologies Q2 FY2026 earnings press release (Form 8-K Exhibit 99.1), filed August 28, 2025 — https://www.sec.gov/Archives/edgar/data/1571996/000157199625000096/exhibit991earnings8kq2fy26.htm
  2. Dell Technologies Q2 FY2026 earnings conference call transcript (prepared remarks and Q&A), August 28, 2025.

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