Dell Reports Solid Q1 with Massive AI Server Momentum; Investors Look to a Blockbuster Q2

Dell Technologies reported mixed fiscal first-quarter results late Thursday, beating revenue expectations but falling short on earnings. However, the real headline was the company’s blowout guidance for the second quarter and surging demand for its AI-optimized servers, which has left investors looking past the earnings miss and toward a potential AI-fueled breakout. Dell's strong order book and bullish commentary on upcoming trends in artificial intelligence, PC refresh cycles, and server infrastructure highlight the company’s growing relevance in the AI hardware race.

For its fiscal Q1 2026, Dell reported adjusted EPS of $1.55, below the consensus estimate of $1.69. Revenue came in at $23.38 billion, up 5% year-over-year and ahead of expectations for $23.14 billion. The miss on earnings was attributed largely to softer margins in the Infrastructure Solutions Group (ISG) and modest tariff-related impacts in the Client Solutions Group (CSG). Still, Dell raised its full-year EPS guidance and issued a Q2 outlook that crushed Wall Street expectations, sparking an after-hours rally in the stock.

Breaking down the numbers, Dell’s ISG segment posted record revenue of $6.3 billion, up 16% YoY, driven by an explosion in demand for AI-optimized servers. The company reported $12.1 billion in AI server orders in Q1—already exceeding the total AI server shipments for all of fiscal 2025. Management expects $7 billion of those orders to convert to revenue in Q2, helping fuel guidance of $28.5 to $29.5 billion for the current quarter, versus consensus of just $25.35 billion. Dell now holds a $14.4 billion AI server backlog, with demand stretching across sovereign clients, enterprise AI projects, and cloud service providers, including key relationships with Nvidia and the U.S. Department of Energy.

The ISG operating margin came in at 9.7%, below expectations of 10.8%, largely due to unfavorable mix—more large customer deals and less North American volume. Importantly, management emphasized that AI server margins remain healthy. In contrast, the CSG business, which includes PCs, delivered in-line EBIT despite investor concern about margin pressure across the broader PC sector following HP’s recent earnings report. Dell noted that falling component prices—including CPUs, DRAM, and displays—are helping to offset margin headwinds from tariffs.

Looking forward, Dell raised its full-year adjusted EPS guidance to $9.40 (from $9.30) at the midpoint, ahead of the Street's $9.20 estimate. It maintained its FY revenue forecast at $101 to $105 billion. Analysts at Bank of America see Dell’s AI server revenue potentially exceeding $30 billion over the next two years, calling the stock an early-stage beneficiary of AI infrastructure spending. Goldman Sachs added that Dell's massive $1.98 billion in share buybacks during the quarter (22.1 million shares at ~$90/share) demonstrates management’s willingness to defend valuation and instill confidence.

Executives on the earnings call highlighted that while the PC refresh cycle remains behind historical patterns, early indicators suggest that enterprises are beginning to upgrade to Windows 11 machines, many of which include AI acceleration features. The company expects this trend to strengthen heading into the back half of the year. The CSG outlook was described as “better than feared,” a notable signal given persistent macroeconomic uncertainty and weak corporate spending sentiment.

Still, Dell trimmed its FY26 EBIT forecast slightly to $9.1–$9.5 billion (from $9.2–$9.6 billion), citing more cautious assumptions for traditional servers, PCs, and storage. That said, the company reiterated that these headwinds are being more than offset by the strength in AI infrastructure and component deflation. Analysts including Citi’s Asiya Merchant continue to view Dell as a core AI hardware play with accelerating tailwinds and rising earnings power, especially if U.S. GDP growth surprises to the upside.

Despite an earnings miss, Dell's quarter was a strategic win. AI orders were far stronger than expected, forward guidance was revised higher, and buybacks signaled confidence. The stock rose 4% in after-hours trading but has given up those gains. Investors will be watching for execution in Q2 and further updates on AI server deployment timelines.

In summary, Dell delivered a Q1 that was fundamentally solid but strategically significant. The strength of the company’s AI order pipeline, its record-setting backlog, and a confident full-year outlook suggest Dell is on the front foot of one of the most transformative hardware cycles in recent history. While earnings volatility in legacy segments may linger, the long-term setup appears increasingly constructive for shareholders willing to ride the AI wave.