Dell’s latest quarter was a story of two headlines: record-breaking AI server shipments on one hand, and razor-thin profitability on the other. For investors watching the AI infrastructure race, it’s an important reminder that growth alone isn’t enough—the market wants both scale and margin expansion.
📈 Exceptional Growth in AI Servers
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Dell raised its AI server shipment outlook for FY26 from $15B to $20B—a 33% jump.
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Q2 shipments came in at $8.2B, up 356% QoQ and 165% YoY.
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AI now accounts for nearly 19% of Dell’s revenue outlook for FY26, placing it in the top 10 public companies by AI revenue, alongside Broadcom.
Management called it the largest customer base and enterprise revenue quarter in company history.
💡 The Catch: Margins Are Razor Thin
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Analysts estimate Dell’s AI server margins could be as low as 2–2.5%.
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Gross margins dipped below 20% for the first time in three years, driven by the mix shift toward AI servers.
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Operating margin held steady at 5.9% GAAP (up YoY but still under pressure).
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The CFO promised margin improvement in the back half of FY26, citing a better mix of storage and enterprise customers versus lower-margin cloud service providers.
For now, however, the market isn’t rewarding Dell like it rewards Nvidia or even AMD—the growth is real, but the profitability isn’t there yet.
🧭 Segment Breakdown
Infrastructure Solutions Group (ISG)
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Revenue: $12.94B, up 69% YoY / 105% QoQ.
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AI shipments were the star, but margins slipped: 8.8% vs 11% last year.
Client Solutions Group (CSG)
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Flat revenue at $12.5B, with commercial PCs showing weakness.
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Consumer PCs rebounded QoQ but still -7% YoY.
💵 Cash Flow & Capital Returns
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Operating cash flow hit a record $5.3B in 1H, though Q2 margins dipped due to higher accounts receivable.
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Dell returned $1.3B to shareholders via buybacks and dividends.
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Debt remains high at $28.7B, but cash reserves grew slightly to $8.15B.
🎯 Investor Takeaway
From an AI growth perspective, Dell deserves recognition—$20B in AI revenue is massive. But with server margins this thin, it’s hard to cheer.
At Blue Mango, we see Dell as a watchlist stock, not a buy, until management proves AI can be more than a “race to the bottom” in profitability. The roadmap for margin recovery—via storage attach rates, enterprise customers, and IP differentiation—sounds promising, but it’s not in the numbers yet.
For now, we’re keeping Dell at a tiny placeholder position (~1%). If margins improve in FY26’s back half as promised, this could become a stronger story.
✅ Bottom Line: Dell’s AI growth is impressive, but Wall Street is paying more attention to margins than megawatts. Investors should too.