Dell Technologies Q3 FY26 earnings: AI server momentum sets record, but storage softness signals caution

Dell Technologies Inc. reported record results for the third quarter of fiscal year 2026, driven by accelerating demand for artificial intelligence infrastructure. The technology major posted revenue of 27 billion dollars, an increase of 11 percent compared to the same period last year. This surge was primarily supported by record AI server orders and a strengthening pipeline across enterprise, sovereign, and neocloud customers.

Diluted earnings per share on a GAAP basis came in at 2.28 dollars, up 39 percent year over year. On a non-GAAP basis, the company delivered diluted earnings per share of 2.59 dollars, a 17 percent improvement. Operating income climbed to 2.1 billion dollars, representing a 23 percent year-on-year rise, while adjusted free cash flow more than doubled to 1.7 billion dollars. Executives at Dell Technologies noted that these figures set a new high watermark for third-quarter performance, reinforcing the company’s leadership in the fast-evolving AI server landscape.

Infrastructure Solutions Group, which includes server, networking, and storage hardware, was the main growth driver in Q3. The segment delivered revenue of 14.1 billion dollars, up 24 percent year on year, with Servers and Networking accounting for 10.1 billion dollars of that total. Storage, however, registered a 1 percent year-over-year decline, coming in at 4.0 billion dollars.

Why AI servers are Dell Technologies’ biggest growth engine in fiscal 2026

The third quarter underscored Dell Technologies’ pivot toward high-performance AI infrastructure, with record quarterly orders of 12.3 billion dollars for AI-optimized servers. Cumulative AI server orders have reached 30 billion dollars so far this fiscal year, with shipments totaling 15.6 billion dollars through the third quarter. The company expects to ship another 9.4 billion dollars worth of AI servers in the fourth quarter, taking its fiscal 2026 shipment total to approximately 25 billion dollars. This would represent more than 150 percent growth over the prior year.

The company also reported a robust AI infrastructure backlog of 18.4 billion dollars exiting Q3. Management highlighted that its forward-looking pipeline, which spans the next five quarters, is a multiple of that backlog. According to executive leadership, Dell Technologies is differentiating itself by offering bespoke, high-throughput data center solutions with global scale deployment capabilities and 24×7 service support. Its expanded rack-scale integration services and flexible financing options are resonating with hyperscale, public sector, and enterprise customers. Key partnerships across ecosystems with NVIDIA, AMD, Intel, and other semiconductor majors further enable competitive performance at scale.

How the Infrastructure Solutions Group delivered record growth and margin expansion

Within the Infrastructure Solutions Group, the momentum was clearly visible in both topline and bottom-line performance. The segment’s 14.1 billion dollars in revenue marks the highest-ever third-quarter total, driven by a 37 percent increase in Servers and Networking revenue. Operating income for ISG rose 16 percent year over year to 1.7 billion dollars, supported by an operating margin of 12.4 percent, compared to 13.3 percent a year ago.

Although traditional storage revenue was down slightly, the company noted sequential improvements in profitability, driven by higher-margin proprietary IP products like PowerMax, PowerStore, and PowerFlex. Double-digit demand growth was observed across the All-Flash Array portfolio, and management attributed this to increasing demand for data center modernization. Dell Technologies emphasized that over 70 percent of its installed server base is still running on 14th-generation platforms or older, pointing to a significant upgrade cycle opportunity with 16th and 17th-generation systems offering up to five times more processing cores and 235 percent higher power efficiency.

Is the Client Solutions Group on track despite consumer weakness?

The Client Solutions Group generated 12.5 billion dollars in revenue, a modest increase of 3 percent year over year. The commercial subsegment, which includes business PCs, workstations, and related solutions, grew by 5 percent to 10.6 billion dollars. This marked the fifth consecutive quarter of commercial growth, led by small and medium business demand and international market strength. Consumer revenue, however, dropped by 7 percent to 1.9 billion dollars, reflecting ongoing weakness in discretionary spending.

Operating income for CSG was flat at 748 million dollars, with margin stability maintained despite challenges in consumer device sales. Executives noted that while commercial margins remained healthy, the group’s overall contribution to Dell Technologies’ profit mix continues to decline relative to ISG. Looking ahead, the company is recalibrating its product mix toward commercial premium categories where its market share is expanding. However, the consumer market still accounts for nearly a quarter of the industry, leaving a sizeable gap in Dell’s coverage that the company may eventually need to readdress.

What is Dell Technologies projecting for Q4 and full-year fiscal 2026?

Dell Technologies raised its full-year revenue guidance to a midpoint of 111.7 billion dollars, reflecting 17 percent year-over-year growth. The company expects non-GAAP diluted earnings per share of 9.92 dollars for the full fiscal year, up 22 percent. For the fourth quarter, Dell Technologies is forecasting revenue between 31.0 billion and 32.0 billion dollars, representing a 32 percent increase from the prior-year period. The corresponding GAAP diluted earnings per share are projected at 3.05 dollars, while non-GAAP EPS is expected to reach 3.50 dollars.

Management provided a clear breakdown of its assumptions for Q4. Infrastructure Solutions Group is expected to grow in the mid-sixties year over year, largely due to the projected 9.4 billion dollars in AI server shipments. Client Solutions Group is forecast to grow at a low-to-mid single-digit pace. Non-GAAP operating expenses are expected to remain flat sequentially, and the diluted share count is projected to be approximately 672 million shares.

How are investors reacting to Dell Technologies’ capital returns and debt strategy?

Dell Technologies returned 1.6 billion dollars to shareholders in the third quarter through dividends and share repurchases. Year to date, that figure stands at 5.3 billion dollars. Since launching its dividend program, the company has returned 16.1 billion dollars to shareholders, which amounts to 97 percent of adjusted free cash flow during that period. The company ended the quarter with 11.3 billion dollars in cash and investments and maintained a core leverage ratio of 1.6x.

The company reiterated its long-term capital allocation framework, which includes returning more than 80 percent of adjusted free cash flow to shareholders annually, maintaining investment-grade credit ratings, and selectively pursuing mergers and acquisitions aligned with its AI and infrastructure strategy.

What is the long-term outlook and investment thesis for Dell Technologies?

Dell Technologies is targeting a 7 to 9 percent compound annual revenue growth rate through FY30, with diluted EPS growing 15 percent or more annually. Its capital-efficient model aims to convert over 100 percent of net income to adjusted free cash flow and return at least 80 percent of that to shareholders. The dividend is expected to grow at 10 percent or more annually.

Analysts tracking the stock believe Dell Technologies is well-positioned to capitalize on the secular shift toward AI infrastructure and data center modernization. The company’s unmatched supply chain, services footprint, and vertically integrated go-to-market engine provide durable advantages in a market increasingly shaped by high-performance computing demands.

The biggest near-term watchpoint will be how quickly the company can translate its record AI server backlog into fulfilled shipments and sustained revenue visibility, especially as macroeconomic uncertainty and supply chain normalization unfold across the tech sector.

What are the key takeaways from Dell Technologies’ Q3 FY26 results?

• Dell Technologies Inc. reported record Q3 revenue of 27.0 billion dollars, up 11 percent year over year, driven by accelerating demand for AI infrastructure.

• GAAP diluted earnings per share rose 39 percent to 2.28 dollars, while non-GAAP diluted EPS increased 17 percent to 2.59 dollars.

• AI server orders totaled 12.3 billion dollars in Q3 alone, pushing year-to-date orders to 30 billion dollars and shipments to 15.6 billion dollars.

• Full-year AI server shipments are projected to reach 25 billion dollars, representing more than 150 percent growth over FY25.

• Infrastructure Solutions Group revenue rose 24 percent year over year to 14.1 billion dollars, with Servers and Networking up 37 percent.

• Storage revenue declined 1 percent to 4.0 billion dollars, although profitability improved due to growth in proprietary IP offerings like PowerMax and PowerFlex.

• Client Solutions Group revenue increased 3 percent to 12.5 billion dollars, with commercial client growth of 5 percent offsetting a 7 percent decline in consumer sales.

• Dell Technologies returned 1.6 billion dollars to shareholders in Q3, bringing its year-to-date capital return to 5.3 billion dollars through buybacks and dividends.

• The company raised its full-year FY26 revenue guidance to a midpoint of 111.7 billion dollars, with non-GAAP EPS expected to reach 9.92 dollars.

• Dell ended the quarter with 11.3 billion dollars in cash and investments, and reiterated its long-term framework of 15 percent annual EPS growth and 80 percent capital return.