Dell's AI Tailwind Broadens: Record Revenue From Traditional Servers and Storage
AI servers may grab headlines, but Dell's quarter was defined by a 122% surge in traditional servers and a 26% storage rebound—signaling a broader infrastructure upgrade cycle.
DELL · Earnings Call · 2026-09-01
Beyond the AI Box
Dell delivered record revenue of $47 billion (up 58% YoY) and EPS of $7.04 (up 203%). Behind these numbers is a broadening of demand that management argues is durable and structural. As Jeff Clarke put it, "AI is an important catalyst, but the opportunity extends well beyond AI-optimized infrastructure." “AI is an important catalyst, but the opportunity extends well beyond AI-optimized infrastructure.” — Jeffrey Clarke, Vice Chairman and Co-Chief Operating Officer · 2026-09-01 The evidence is in the product mix: traditional server revenue grew 122%, storage rose 26%, and CSG grew 20%. This is not just an AI-box story. The installed base remains the biggest prize: “we still have 1.2 million assets that are 14G or older in the installed base.” — Jeffrey Clarke, Vice Chairman and Co-Chief Operating Officer · 2026-09-01 That base represents a multiyear upgrade cycle, especially as customers consolidate onto newer 17G and 18G platforms. The catalyst is increasingly agentic workloads, which require substantial CPU capacity to manage the harness around GPU inference. As Jeff said in the prior quarter, "the agentic AI is driving a new marketplace for traditional servers that we have not seen before." “the agentic AI is driving a new marketplace for traditional servers that we have not seen before.” — Jeffrey W. Clarke, Vice Chairman and Co-Chief Operating Officer · 2026-05-28 That trend has not only continued but intensified.Storage Is Back
Storage revenue grew 26%, and Dell's own Dell IP mix is now driving margin expansion. The shift away from third-party storage is finally paying off. David Kennedy pointed to scale as the biggest driver of ISG margins: “the #1 driver here is a scale conversation given the growth that we're seeing and accelerated growth that we're seeing.” — David Kennedy, Chief Financial Officer · 2026-09-01 But storage is also benefiting from AI attach: as enterprises build data lakes for agentic workflows, they need high-performance file systems and data protection. The tape history confirms this momentum—storage names like PowerScale and ObjectScale are seeing double-digit growth, suggesting the attach thesis is now material.Supply Discipline and Structural Leverage
Dell raised its full-year revenue guide by $25 billion to $192 billion and EPS to $25.50. The company is guiding to operating expenses of roughly 8% of revenue—the lowest in its 42-year history. As CFO David Kennedy summarized in the guidance:The structural cost discipline shows up in the operating margin trend. Operating margin expanded 400 basis points year-over-year to 9.0% in the most recent filed quarter, and management expects further leverage from OpEx discipline. The company also generated $8.1 billion of adjusted free cash flow in the quarter, returned a record $4.3 billion to shareholders, and ended with $14.2 billion in cash and investments. What makes this different from a fleeting AI boom is that customers are treating IT as a value creator, not a cost center. AI server backlog reached a record $95 billion, and the five-quarter pipeline grew sequentially even after converting $131.7 billion in orders over the past year. With supply still constrained—DRAM, NAND, and disk drives are tight—Dell maintains price discipline and focuses on profitable growth. The share gain across all segments is a testament to that execution.For the full year, we are raising our revenue guide by $25 billion to $192 billion at the midpoint, up roughly 70%, with diluted non-GAAP EPS of $25.50, up approximately 150%.