AI server frenzy fuels record revenues for Dell

Dell said it expects the AI DC boom to continue in 2027,   with projected growth for traditional servers and storage, and server refreshes in datacenters.

The hardware maker reported its fiscal fourth-quarter results for fy2026 this morning, saying revenues ramped up 39 percent year-on-year to a record $33.4 billion, beating its guidance, and sending full year revenues to a record $113.5 billion as well, beating that guidance too.

There was a GAAP profit of $2.26 billion, up 47 percent year-on-year. It was all down to AI, with an enormous surge in server sales, as Dell’s early bet on AI is paying off big time.

Vice Chairman and COO Jeff Clarke said: “FY26 was a defining year in our company’s history … “The AI opportunity is transforming our company. We closed more than $64 billion in AI-optimized server orders, shipped more than $25 billion throughout the year, and are entering FY27 with record backlog of $43 billion — powerful proof that our engineering leadership and differentiated AI solutions are winning.”

Financial Summary

• Gross Margin: 20.2 percent vs 23.7 percent a year ago
• Operating cash flow: $4.67 billion compared to $595 million a year ago
• Free cash flow: $3.95 billion vs year-ago -$117 million
• Cash, cash equivalents and restricted cash: $11.7 billion vs $3.82 billion a year ago
• Total debt: $31.8 billion compared to $24.8 billion last quarter
• Diluted EPS: $3.37, up 57% year-over-year 

Infrastructure Solutions Group (ISG - servers, networking and storage) revenues jumped 73 percent Y/Y to a record $19.6 billion. Within that AI-optimized servers revenue was up an enormous 342 percent to $9 billion. Traditional servers and networking rose 27 percent to $5.9 billion, while storage disappointed with a 2 percent rise to $4.8 billion. This was disappointing only when set against the other ISG sectors; it was almost three times higher than all-storage supplier NetApp’s latest quarterly revenues.

In the earnings call Clarke said there was: “continued outperformance from our Dell IP portfolio. We saw double-digit demand growth in Dell IP with momentum across PowerMax, PowerStore, PowerScale, ObjectScale and data protection. All-flash arrays delivered their third consecutive quarter of double-digit growth. PowerStore, our primary midrange platform, posted its seventh consecutive quarter of double-digit growth.”

 Clarke expanded on the storage business in the earnings call: “Half of those new customers that we are winning are new to PowerStore and nearly 30 percent are new to Dell buying storage. We saw tremendous demand for our unstructured products as AI inference and AI continues to grow, grow, grow.”

He reckons: “We're entering an era in my humble opinion, where architecture matters. So where we have the leading data rate reduction 5:1 with our PowerStore product, we're going to increase customers' effective storage capacity. We're the leader there. You take our data protection product where we have up to 75:1 compression in dedupe, we are going to help customers through this memory crisis shortage, whatever you want to call it, with advanced architectures that require fewer servers and fewer drives to back up customers' information. That architecture difference, we believe, is fuel that will continue to serve our Dell IP portfolio well in FY ’27."

ISG profitability improved sequentially to 14.8 percent driven by the storage product mix with a higher proportion of Dell-owned software.

Traditional server demand significantly outpaced supply, with double-digit demand growth across every region.

Client Solutions Group (CSG - PCs, laptops, etc.) rose less strongly at 14 percent to $13.5 billion, with Dell saying it gained market share. The commercial client sector revenues were up 16 percent to $11.6 billion, growing for the sixth consecutive quarter, but consumer revenues were dull, being $1.9 billion, the same as a year ago. 

Awash with cash, Dell announced a cash dividend increase of 20 percent and $10 billion increase in share repurchase authorization.

Clarke said: ”It was a monumental year. We exit with strong momentum, and I couldn't be more proud of this team.”

Yes there are supply chain problems, with Clarke saying the “unprecedented AI demand [is] creating sustained supply tightness and frequent pricing resets.”

So: “We're executing our operating model with urgency, securing supply as the first priority. Our scale, direct model, world-class supply chain and long-standing supplier relationships are a real advantage and they become even more visible in periods of disruption. We are managing this environment in real time, applying lessons learned from prior cycles to improve resilience and to strengthen our position.”

He added: “I think we are operating at a high level of proficiency of changing our price as our input costs are rapidly changing.”

CFO David Kennedy said: “We have the portfolio, operating model and growing customer base to exceed our long-term growth targets in FY27.”

Revenue guidance for Dell’s next quarter is $35.2 billion +/- $500 million; a huge 51 percent jump. The full fiscal 2027 guidance is $140 billion +/- $2 billion; 23 percent growth at the mid-point. Within that it expects $50 billion of AI-optimized server revenue, up 100 percent Y/Y. Also Dell is guiding full year growth in the mid-single digits for traditional servers and storage, with server refreshes in data centers. The growth is concentrated in traditional servers and more weighted towards the first half.

Talking about server upgrades, Clarke said: “The ROI to refresh is compelling. Even at higher ASPs, customers see a 7:1 consolidation when upgrading from the 14th generation to our latest platforms.”

And he added this storage nugget: “Lightning, our parallel file solution, remains on track for general availability in the first half of the year with early customer deployments already underway.”