Dell's AI server orders surge to $12.1 billion, but traditional business under pressure | Earnings Report Insights

Dell Technologies' latest financial report shows that the explosive growth in AI server demand is reshaping the business landscape of this established PC manufacturer, while also exposing the weakness of its traditional consumer business and structural challenges to profitability.

On Thursday after the U.S. stock market closed, Dell Technologies announced its Q1 financial results for fiscal year 2026, with the most striking figure being $12.1 billion in AI server orders, a number that not only exceeds the company's entire AI server shipment volume for fiscal year 2025 but also brings its AI order backlog to a historic high of $14.4 billion.

Despite the surge in AI orders, Dell's adjusted EPS for Q1 was still $1.55, below analysts' expectations of $1.69. Additionally, traditional business performance is also under pressure:

Financial Performance: Q1 revenue was $23.38 billion, a year-on-year increase of 5%, slightly exceeding expectations; adjusted EPS was $1.55, below the expected $1.69;

AI Business Explosion: AI orders for the quarter reached $12.1 billion, surpassing the entire shipment volume for fiscal year 2025; AI order backlog reached $14.4 billion;**

Significant Business Divergence: Infrastructure Solutions revenue grew 12% to $10.32 billion; Consumer PC revenue declined 19% under pricing pressure;

Future Guidance: Expected EPS for the quarter is $2.25, with revenue of $29 billion, both significantly exceeding expectations; adjusted EPS for fiscal year 2026 is revised up from previous forecasts to $9.40, surpassing analysts' expectations of $9.21.

Chief Operating Officer Jeff Clarke admitted during the earnings call that the company is " experiencing unprecedented demand for AI-optimized servers." However, Clarke emphasized the "volatility" characteristic of the AI market. He pointed out:

Customers are deploying large and complex systems, and the business's reliance is on waiting for data center construction, power supply, and cooling infrastructure. We are coordinating a highly complex supply chain.

After the earnings report was released, Dell Technologies' stock initially rose over 5% in after-hours trading, but as of the time of writing, the gain narrowed to 2%. The stock price showed volatility in after-hours trading, reflecting investors' excitement about the AI outlook while also maintaining caution regarding execution risks.

Traditional Business Under Pressure, Transformation Divergence Intensifies

Dell is transitioning from a traditional hardware manufacturer to an AI infrastructure solutions provider, with the two major business segments in the financial report showing a typical "ice and fire" pattern.

In the Q1 report, the performance of the Client Solutions Group (CSG) is concerning. Consumer PC revenue declined by 19%, and the entire business unit, which includes both consumer and commercial PCs, saw operating income decrease by 16%.

Dell's management acknowledged that the consumer PC business performed poorly in the first fiscal quarter, facing pricing pressure from competitors, which further squeezed profit margins In contrast, the company benefits from the construction boom of AI infrastructure. The Infrastructure Solutions Group (ISG) generated revenue of $10.3 billion, a year-on-year increase of 12%, with the server and networking business contributing $6.3 billion and the data storage business $4 billion.

These servers are used by clients such as xAI and CoreWeave in their data centers. Dell expects AI server revenue to reach $15 billion in fiscal year 2026, an increase of about 50% compared to $9.8 billion in fiscal year 2025.

However, analysts point out that even in this new growth area of AI servers, investors are concerned that rising costs may erode profit margins