Dell Technologies Inc. (DELL) — Form 10-Q — Fiscal Quarter Ended May 1, 2026

Dell Technologies Inc. delivered a transformative quarter in the first quarter of Fiscal 2027, with total net revenue surging 88% year-over-year to $43.8 billion, fueled overwhelmingly by explosive demand for AI-optimized infrastructure. The Company's Infrastructure Solutions Group (ISG) emerged as the primary growth engine, more than doubling in size as enterprises and cloud service providers accelerated their adoption of artificial intelligence technologies at unprecedented scale. This quarterly report on Form 10-Q, filed for the period ended May 1, 2026, provides detailed financial results, segment performance, risk disclosures, and management's discussion and analysis covering the Company's operations, financial condition, and forward-looking outlook.

I. Revenue and Segment Performance

Dell Technologies reported total net revenue of $43.8 billion for the first quarter of Fiscal 2027, an increase of 88% compared to $23.4 billion in the prior-year period [Item 2 - MD&A, Table 55]. This exceptional growth was driven by surging demand across both operating segments, led by the Infrastructure Solutions Group (ISG) and, to a lesser extent, the Client Solutions Group (CSG), partially offset by a decline in Corporate and other revenue attributable to the wind-down of VMware Resale [Item 2 - MD&A, ¶31].

Infrastructure Solutions Group (ISG). ISG net revenue soared 181% to $29.0 billion, marking a historic quarter for the segment. The standout driver within ISG was AI-optimized servers, which experienced a staggering 757% increase to $16.1 billion as customers continued to adopt and integrate AI technologies at scale across diverse use cases. Traditional servers and networking revenue rose 92% to $8.5 billion, supported by disciplined pricing, richer configurations, and the ongoing technology refresh cycle. Storage revenue grew a more modest 8% to $4.3 billion, reflecting continued demand for Dell's proprietary storage solutions [Item 2 - MD&A, ¶44]. ISG operating income as a percentage of net revenue increased 80 basis points to 10.5%, demonstrating that despite margin compression from the AI-server mix, the segment achieved overall profitability expansion [Item 2 - MD&A, ¶44].

Client Solutions Group (CSG). CSG net revenue rose 17% to $14.6 billion, led by an 18% increase in commercial revenue driven by higher average selling prices and increased unit volumes as the PC refresh cycle gained momentum. Consumer revenue grew 9% year-over-year, reflecting broad-based demand across the personal computing market [Item 2 - MD&A, Table 60].

Geographic and Currency Considerations. Revenue increased across all major geographies during the quarter, with growth recorded in the Americas, EMEA, and APJ. The most notable growth occurred within the Americas for ISG and in EMEA for CSG. Approximately 45% of net revenue was generated from sales to customers outside the United States, compared to 50% in the prior-year period [Item 2 - MD&A, ¶17]. Dell mitigates foreign currency exposure through a comprehensive hedging strategy utilizing forward contracts and purchased options designated as cash flow hedges, along with pricing adjustments where possible to minimize currency impacts on operating results [Item 2 - MD&A, ¶64].

Revenue Mix and Recurring Revenue. A significant shift in revenue mix occurred as AI-optimized server sales accelerated. Product net revenue increased 117% to $38.1 billion, representing 86.9% of total revenue, up from 75.3% a year earlier. By contrast, services net revenue declined 1% to $5.7 billion, reflecting the wind-down of VMware Resale, partially offset by higher ISG support and maintenance revenue from products sold in prior periods [Item 2 - MD&A, ¶34]. Within ISG, the pronounced mix shift toward AI-optimized servers exerted pressure on gross margin rates, as these lower-margin offerings consumed a larger share of the revenue base. Dell defines recurring revenue as revenue from hardware and software maintenance, operating leases, subscription, as-a-Service, and usage-based offerings. The Company continues to expand flexible consumption models through Dell Financial Services, which originated $2.8 billion in new financing during the quarter, up from $1.6 billion a year ago, providing a foundation for growing recurring revenue streams over time [Item 2 - MD&A, ¶16].

II. Profitability and Margin Analysis

Dell Technologies delivered exceptional profitability results in the first quarter of Fiscal 2027, driven by surging revenue and disciplined cost management that produced substantial operating leverage. Gross margin increased 58% year-over-year to $7.8 billion, though the gross margin percentage contracted 330 basis points to 17.8% as the continuing mix shift toward lower-margin AI-optimized server offerings compressed overall rates. On a non-GAAP basis, gross margin reached $7.9 billion, up 57%, with the non-GAAP rate declining 350 basis points to 18.1% [Item 2 - MD&A, ¶36].

Operating Expenses and Leverage. Operating expenses rose 9% year-over-year to $4.1 billion but declined sharply as a percentage of net revenue from 16.1% to 9.5%, demonstrating significant operating leverage from the expanded revenue base. Selling, general, and administrative expenses grew 6% due to higher variable compensation linked to improved performance, while research and development spending increased 22% to $983 million, also driven by increased variable compensation. As a percentage of revenue, R&D expenses fell from 3.5% to 2.2%, benefiting from the scale of the substantial revenue expansion [Item 2 - MD&A, ¶40]. Non-GAAP operating expenses totaled $3.7 billion, or 8.4% of net revenue, reflecting disciplined cost management across the organization.

Operating and Net Income. Operating income surged 214% to $3.7 billion, with the operating margin expanding 330 basis points to 8.3%. This margin expansion was driven by the decline in the operating expense rate that more than offset the gross margin rate compression from the AI-server mix shift. Non-GAAP operating income rose 154% to $4.2 billion, yielding a 9.7% margin — an increase of 260 basis points [Item 2 - MD&A, ¶41]. The $0.6 billion gap between GAAP and non-GAAP operating income reflects amortization of intangible assets, stock-based compensation, and $293 million in other corporate expenses — most notably $0.2 billion in severance costs from workforce reduction activities undertaken as part of the Company's ongoing business modernization initiatives [Item 2 - MD&A, ¶23].

Net income increased 256% to $3.4 billion, and GAAP diluted earnings per share rose 282% to $5.24 [Item 2 - MD&A, ¶43]. Non-GAAP net income grew 194% to $3.2 billion, with non-GAAP diluted earnings per share of $4.86, up 214% [Item 2 - MD&A, ¶43]. The effective income tax rate increased to 12.9% from 10.9%, with discrete tax benefits of $0.2 billion recorded related to stock-based compensation [Item 2 - MD&A, ¶42].

Underlying Profitability Dynamics. Several dynamics shaped Dell's profitability profile during the quarter. AI-optimized server revenue surged 757% to $16.1 billion, driving a pronounced mix shift toward offerings with lower gross margins, which compressed overall margin rates despite substantial dollar-level margin growth [Item 2 - MD&A, ¶44]. Simultaneously, strong industry demand and current limitations in capacity from memory manufacturers caused global supply constraints and substantial inflation in memory component costs, increasing input costs across the business [Item 2 - MD&A, ¶10]. Dell's disciplined pricing strategy partially mitigated these headwinds, particularly in traditional servers and CSG offerings, where higher average selling prices supported segment profitability. Business modernization initiatives contributed to the net reduction in operating expense rates, and the strong cash generation from the expanded revenue base provided additional financial flexibility.

III. Cash Flow, Liquidity, and Capital Resources

Dell Technologies generated substantial cash flows during the first quarter of Fiscal 2027, underscoring the Company's strong cash generation capabilities and providing robust liquidity to support growth investments and stockholder returns.

Cash Flow Performance. Cash provided by operating activities reached $4.1 billion, a significant increase from $2.8 billion in the prior-year period, driven by robust net revenue growth and strong profitability partially offset by working capital dynamics related to increased demand for AI-optimized servers [Item 2 - MD&A, ¶55]. Cash used in investing activities was $1.1 billion, primarily consisting of capital expenditures to support business growth and assets in customer contracts, while cash used in financing activities was $3.0 billion, reflecting share repurchases, dividend payments, and net debt repayments [Item 2 - MD&A, ¶56].

Dell defines free cash flow as cash from operations less capital expenditures and capitalized software development costs. For the first quarter, free cash flow was $3.1 billion, up 40% from $2.2 billion a year ago. Adjusted free cash flow, which further adjusts for the impact of financing receivables and equipment under operating leases, was $3.2 billion. The Company uses these non-GAAP liquidity measures as part of its long-term capital allocation framework [Item 2 - MD&A, Table 54].

Liquidity Position. Dell's liquidity position remains robust. As of May 1, 2026, the Company held $11.6 billion in cash and cash equivalents, supplemented by a $6.0 billion revolving credit facility (with approximately $5.9 billion available and no borrowings outstanding) and a $5.0 billion commercial paper program with no outstanding issuances [Item 2 - MD&A, ¶52]. Total debt principal stood at $31.4 billion, down $0.4 billion from the prior quarter-end, driven primarily by net repayments of senior notes. Excluding DFS-related securitization debt, core debt was $16.7 billion [Item 2 - MD&A, ¶53]. The revolving credit facility, which matures in November 2027, is subject to an interest coverage ratio covenant tested quarterly, and Dell was in full compliance as of May 1, 2026 [Item 1 - Financial Statements, ¶35].

Capital Allocation and Stockholder Returns. Dell remains committed to returning significant capital to stockholders. During the quarter, the Company repurchased approximately 11 million shares of Class C Common Stock for $1.6 billion and paid $0.5 billion in dividends at the increased quarterly rate of $0.630 per share, reflecting a 20% dividend increase approved by the Board in February 2026. The Board also authorized an additional $10 billion for share repurchases, bringing the total remaining authorization under the program to approximately $15.2 billion [Item 2 - MD&A, ¶60]. The Company's capital allocation strategy prioritizes stockholder returns alongside growth investments and maintaining an investment-grade credit rating [Item 2 - MD&A, ¶51]. Management believes that existing cash, cash flows from operations, and available borrowings will be sufficient to meet material cash requirements, including debt service, capital expenditures, and other corporate needs, over the next twelve months and beyond.

IV. Market Risk and Quantitative Disclosures

Dell Technologies' quantitative and qualitative disclosures about market risk are provided in Item 3 of this Form 10-Q, which cross-references the detailed discussion in Part II — Item 7A of its Annual Report on Form 10-K for Fiscal 2026. The Company states that its exposure to market risks has not changed materially from the disclosures in that Annual Report and that no new quantitative sensitivity analyses are presented in this quarterly report [Item 3 - Market Risk, ¶1].

Interest Rate Risk. Dell maintains a significant debt portfolio, with total outstanding principal of $31.4 billion as of May 1, 2026 [Item 2 - MD&A, ¶53]. Within this portfolio, the Company is exposed to interest rate risk related to its variable-rate debt. Dell follows established policies and procedures to manage this risk, including monitoring its asset and liability mix and utilizing derivative instruments, and as a result does not anticipate any material losses from interest rate risk [Item 2 - MD&A, ¶64]. Under its variable-rate debt, Dell could experience variations in future interest expense from potential fluctuations in applicable reference rates, as well as from possible changes in the level of DFS-related debt required to meet customer financing demand [Item 2 - MD&A, ¶54].

Foreign Currency Exchange Risk. Dell manages its business on a U.S. Dollar basis but has a substantial global footprint, with approximately 45% of net revenue generated from sales to customers outside the United States during the first quarter of Fiscal 2027. As a result, operating results are exposed to fluctuations in foreign currency exchange rates. Dell employs a comprehensive hedging strategy designed to mitigate the impact of foreign currency volatility over time. Specifically, the Company uses forward contracts and purchased options designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in forecasted transactions denominated in currencies other than the U.S. Dollar. Additionally, forward contracts and purchased options are used to hedge monetary assets and liabilities denominated in foreign currencies [Item 2 - MD&A, ¶64]. The Company also adjusts pricing where possible to minimize currency impacts on operating margins [Item 2 - MD&A, ¶17].

Changes in Risk Management. Dell's risk management strategies remain consistent with prior periods. The Company continues to utilize derivative instruments for foreign currency hedging and maintains disciplined policies for monitoring interest rate exposure on its variable-rate debt portfolio, with no material changes to its overall market risk exposure since its Fiscal 2026 Annual Report [Item 3 - Market Risk, ¶1].

V. Risk Factors and Uncertainties

Dell Technologies' Form 10-Q identifies several material risks and uncertainties that could impact financial performance, incorporating by reference the broader risk factor discussion from the Annual Report on Form 10-K for Fiscal 2026 [Item 1A - Risk Factors, ¶1]. Several risks have become particularly salient given the Company's rapid business transformation toward AI-optimized solutions.

Supply Chain Constraints and Component Cost Inflation. One of the most significant risks that has intensified since the prior period relates to supply chain dynamics. Strong and accelerating industry demand for AI-optimized solutions, combined with capacity limitations from memory manufacturers, has resulted in global supply constraints and substantial inflation in memory component costs. Dell expects this inflationary environment will persist throughout the remainder of Fiscal 2027, creating ongoing margin pressure [Item 2 - MD&A, ¶10-11]. To meet growing demand, Dell has increased purchases of certain components, resulting in higher inventory levels, elevated purchase obligations of $20.8 billion (of which $17.3 billion is payable within twelve months), and new working capital dynamics that could strain liquidity if demand shifts [Item 2 - MD&A, ¶62].

AI Demand Non-Linearity and Revenue Variability. The AI-optimized servers business, while driving exceptional growth (AI server revenue increased 757% year-over-year to $16.1 billion), introduces significant revenue variability. Dell explicitly cautions that the scale of AI opportunities, varying stages of customer readiness, and frequent component part updates create inherent non-linearity in the timing of demand and shipments. This is amplified by concentration risk — the majority of AI-optimized solutions revenue involves a relatively small number of large customers and cloud service providers [Item 2 - MD&A, ¶9, ¶63].

Macroeconomic and Geopolitical Risks. Dell's global operations expose it to trade protection measures, including tariffs and trade barriers, as well as geopolitical volatility from military conflicts. Approximately 45% of net revenue comes from outside the United States, and changes in government policies or international trade arrangements may affect operating results in certain markets. Dell notes it continues to leverage its supply chain to mitigate these impacts [Item 2 - MD&A, ¶17-18].

Gross Margin Pressure and Mitigation Strategies. The rapid shift in business mix toward AI-optimized servers, which carry comparatively lower margins, has compressed overall gross margin percentage by 330 basis points to 17.8%. Dell's management has undertaken several measures to address these risks, including disciplined pricing, strategic supplier agreements, business modernization initiatives, and workforce reductions with $227 million in severance charges recorded during the quarter. The Company maintains a comprehensive hedging program for foreign currency exposure and monitors counterparty credit risk, though it acknowledges that material adverse outcomes could cause actual results to differ materially from forward-looking expectations [Item 2 - MD&A, ¶11, ¶23].

VI. Legal Proceedings and Other Regulatory Matters

Dell Technologies Inc. is involved in various claims, suits, assessments, investigations, and legal proceedings that arise in the ordinary course of business, encompassing consumer, antitrust, tax, intellectual property, and other issues on a global basis. The Company accrues a liability when it believes that both a liability has been incurred and the amount can be reasonably estimated, reviewing these accruals at least quarterly to reflect new information [Item 1 - Financial Statements, ¶48]. As of May 1, 2026, Dell Technologies does not believe there is a reasonable possibility that a material loss exceeding amounts already accrued has been incurred across all proceedings, though the ultimate resolution of such matters is inherently unpredictable and could materially affect results in any particular period [Item 1 - Financial Statements, ¶50].

Material Legal Proceedings. On January 28, 2026, a putative class action entitled Lowbruck et al. v. Dell Technologies Inc., et al. was filed in the U.S. District Court for the Western District of Texas against the Company, its Board of Directors, and the Dell Benefits Administration Committee. The complaint alleges breaches of fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), claiming the defendants failed to remove imprudent investments from the Dell 401(k) Plan in a reasonable time, engaged in allegedly prohibited transactions, and failed to monitor the plan's fiduciaries. The plaintiffs seek a judicial declaration of breach as well as damages, fees, and costs in an unspecified amount, and the Company intends to vigorously defend this action [Item 1 - Financial Statements, ¶49].

Regulatory and Tax Examinations. In June 2023, Dell received a Revenue Agent's Report from the IRS for the federal income tax examination of fiscal years 2018 through 2019, with proposed significant adjustments relating to certain business integration transactions. The Company submitted a written protest in August 2023, received an IRS rebuttal in April 2024, and is contesting the proposed adjustments through the IRS administrative appeals process, which is expected to extend beyond the next twelve months. The IRS is also currently conducting an examination for fiscal years 2020 through 2022, and the Company is undergoing income tax audits in various U.S. state and foreign jurisdictions [Item 1 - Financial Statements, ¶53-54]. Net unrecognized tax benefits stood at $1.1 billion as of May 1, 2026 [Item 1 - Financial Statements, ¶55].

Other Disclosures. Under Part II, Item 2, the Company disclosed that its Board of Directors has authorized stock repurchases of up to $20 billion of Class C Common Stock, with an additional $10 billion authorized on February 26, 2026, leaving approximately $15.2 billion of authorized shares remaining for repurchase under the program [Item 2 - Equity Sales, ¶1]. Under Part II, Item 5, the Company disclosed that on March 10, 2026, General Counsel Richard J. Rothberg adopted a Rule 10b5-1 trading plan for the sale of up to 45,000 shares of Class C Common Stock (expiring June 30, 2026), and on March 24, 2026, director Lynn M. Vojvodich adopted a similar plan for up to 28,198 shares (expiring March 5, 2027) [Item 5 - Other Info, ¶1].

Conclusion

Dell Technologies' first quarter of Fiscal 2027 marked a defining period in the Company's history, as demand for AI-optimized infrastructure propelled revenue to record levels and transformed the Company's business mix in a matter of months. While this rapid growth introduces new risks — including component cost inflation, revenue non-linearity, and gross margin compression from the AI-server mix — Dell's disciplined cost management, robust cash generation, and strong liquidity position provide substantial buffers to navigate these challenges. The Company enters the remainder of Fiscal 2027 with significant momentum, a strengthened capital base, and a clear strategic focus on capturing the secular AI opportunity while maintaining its commitment to stockholder returns through share repurchases and growing dividends.