Earnings Call Insights: Dell Technologies Inc. (DELL) Q3 2026
Management View
- Jeffrey Clarke, COO & Vice Chairman, stated the company delivered a strong third quarter, setting records for both revenue and earnings per share, as well as an all-time high in AI server orders. He reported, “Total revenue reached $27 billion, up 11%. CSG and ISG combined were up 13%. Year-to-date, total revenue was up 12%, with ISG revenue up 28%. EPS was up 17% to $2.59, driven by improved profitability in AI and storage and continued operational scaling.” Clarke highlighted accelerated momentum in AI, with $12.3 billion in AI server orders for the quarter and a year-to-date total of $30 billion, both record levels.
- Clarke explained that AI racks are operational within 24 to 36 hours of delivery, with uptimes exceeding 99%, and a record backlog of $18.4 billion. He emphasized Dell’s unique position in AI: “Our competitive edge in AI is our ability to engineer bespoke, high-performance solutions, deploy large-scale clusters rapidly and support them globally, all backed by an unmatched ecosystem and flexible financing offerings.”
- David Kennedy, Interim CFO & Senior VP of Global Business Operations and Finance, provided additional detail: “Gross margin was up 4% to $5.7 billion or 21.1% of revenue. Gross margin rate was driven primarily by a mix shift to AI servers with shipments doubling year-over-year, partially offset by improved profitability in storage. Operating expense was down 2% to $3.2 billion or 11.8% of revenue. Operating income grew 11% to $2.5 billion or 9.3% of revenue. Q3 net income was up 11% to $1.8 billion… our diluted EPS increased 17% to $2.59, a Q3 record.”
Outlook
- Kennedy guided for Q4 revenue between $31 billion and $32 billion, “up 32% at the midpoint of $31.5 billion.” ISG and CSG combined are expected to grow 34% at the midpoint, with ISG growing mid-60s and CSG up low to mid-single digits. Operating expenses are expected to be flat sequentially. “We expect operating income to be up roughly 21% with continued sequential improvement in ISG operating income rate.”
- For Q4, Dell expects to ship “roughly $9.4 billion of AI servers… bringing full year shipments to roughly $25 billion or over 150% year-over-year.”
- Non-GAAP diluted EPS for Q4 is expected to be $3.50, plus or minus $0.10, “up 31% at the midpoint.” FY26 revenue is projected at $111.7 billion, and non-GAAP EPS at $9.92, “up 22% at the midpoint.”
- For FY27, Kennedy stated, “the long-term framework we outlined at our Securities Analyst Meeting remains a solid starting point as you think about next year.”
Financial Results
- ISG revenue was a Q3 record at $14.1 billion, up 24%. Servers and networking revenue reached a Q3 record $10.1 billion, up 37%. AI server demand delivered a record $12.3 billion in orders, $5.6 billion in shipments, and a record ending backlog of $18.4 billion.
- CSG revenue increased 3% to $12.5 billion, with commercial revenue up 5% and consumer revenue declining 7%. CSG operating income was $0.7 billion or 6% of revenue.
- Cash flow from operations was $1.2 billion. Dell ended the quarter with $11.3 billion in cash and investments and returned $1.6 billion of capital to shareholders, including 8.9 million shares repurchased at an average price of $140 per share.
Q&A
- Samik Chatterjee, JPMorgan: Asked about customer pricing reactions and supply chain cost increases; Clarke responded that “demand is way ahead of supply” and Dell will “minimize the impact” using configuration and pricing strategies, but “cost basis is going up across all products.”
- Mark Newman, Bernstein: Inquired about NVIDIA’s vertical integration and AI server mix; Clarke emphasized Dell’s differentiation at the rack and solution level, stating “our ability to engage with customers early… bring these very complex offers to the marketplace fast and at scale… is a differentiation.”
- Benjamin Reitzes, Melius Research: Asked about AI server margins; Clarke said margins “move to stay right in that range that we’ve talked about, mid-single digits” and expected this to continue.
- Erik Woodring, Morgan Stanley: Questioned the PC refresh cycle; Clarke stated, “we have not completed the Windows 11 transition… ample opportunity to convert,” and sees ongoing opportunities for upgrade.
- Wamsi Mohan, BofA Securities: Asked about AI business growth and cost recovery; Kennedy cited strong demand across Neoclouds, Sovereigns, and Enterprises, and Clarke explained Dell can “recover roughly 2/3 of that cost in a 90-day period” but expects better recovery due to extraordinary actions.
- Amit Daryanani, Evercore: Focused on ISG margin improvement; Kennedy attributed this to “PowerStore… 6 consecutive quarters with double-digit growth” and improved pricing discipline.
- Aaron Rakers, Wells Fargo: Asked about traditional server growth; Clarke noted double-digit demand growth and significant opportunity with “70% of our installed base… still the older generation servers.”
Sentiment Analysis
- Analysts expressed a positive but probing tone, focusing on sustainability of AI momentum, margin improvement, and cost management, with multiple questions about AI pipeline, pricing, and supply chain risks.
- Management maintained a confident tone in both prepared remarks and answers, repeatedly emphasizing operational flexibility, supply chain expertise, and unique value in AI, using phrases such as “we have strong conviction in our AI business” and “we believe that gives us the opportunity to differentiate.”
- Compared to the previous quarter, analyst sentiment remained constructive but more assertive on pricing and supply chain concerns. Management sounded more assured, especially regarding AI business scale and cost recovery, and articulated stronger forward guidance.
Quarter-over-Quarter Comparison
- Q3 guidance and reported results surpassed Q2, with Q3 total revenue of $27 billion and a Q4 outlook midpoint of $31.5 billion, compared to Q2’s $29.8 billion revenue and Q3 midpoint guidance of $27 billion.
- AI server shipment guidance was raised from $20 billion in Q2 to $25 billion for FY26 in Q3. AI server orders and backlog both hit record levels.
- ISG operating income rate improved sequentially, up 360 basis points to 12.4% of revenue, while Q2 highlighted lower rates due to AI mix and one-time supply chain costs.
- Management’s tone shifted to greater confidence in AI demand, supply chain navigation, and cost recovery relative to the prior quarter.
- Analysts’ focus remained on AI growth and profitability, with added emphasis on pricing power and input cost inflation.
Risks and Concerns
- Clarke identified rising costs across DRAM, NAND, hard drives, and semiconductors as a significant headwind, stating “the cost basis is going up across all products.”
- Cost recovery and supply chain constraints were repeatedly cited. Clarke noted, “there’s not going to be enough parts,” highlighting commodity scarcity as a challenge.
- Analyst questions reflected concern about the pace of AI backlog conversion, supply chain resilience, and margin sustainability amid increasing input costs.
Final Takeaway
Dell Technologies delivered record-breaking Q3 results driven by unprecedented AI server demand, with management signaling confidence in scaling AI shipments to $25 billion for the year and maintaining robust profitability. The company underscored its unique supply chain and engineering capabilities as key differentiators, while proactively addressing rising input costs and global supply constraints. A record AI backlog, a sharply higher full-year outlook, and disciplined capital returns position Dell to capitalize on expanding AI infrastructure needs and ongoing IT modernization.