Drill Down Earnings, Ep. 475: Dell Technologies Q2 earnings – ($DELL) – A Deep Dive with Cory Johnson

Cory Johnson (0:04)

Welcome to Drill Down Earnings, a quick look at earnings from Dell Technologies. It's one of the 50 most important companies in technology. I'm Cory Johnson, Chief Marketing Strategist for Epistrophy Capital Research and Dell. Oh my goodness, what a great quarter in this company. Of course, this is a company that builds and ships all the physical guts of the AI boom right now. And if heck, they were the physical guts of the internet boom back in the day. Well, they're back in size bigger than ever, and AI is driving some really incredible hardware sales, whether it's servers or storage or PCs and the supply chain. They put a rack on a datacenter floor, they power the thing, they get it running.

And these products are just right for this market right now, because look, the company just built, or they booked $61 billion in the quarter of new orders more than the entire company revenue a year ago. So this is just, the wave has hit this company in ways that they've never seen before. This is Q2 earnings in their fiscal 2027 Yes, it was better than expectations, better than Wall Street's expectation. In the quarter, they booked revenues of $47 billion, and earnings per share, adjusted earnings per share, was $7.04. But when you dig a little bit deeper in the actual numbers, you see that AI propelled the revenue growth here. Well, the wave hit them, maybe last quarter, you saw revenue growth over 90%. This quarter, only 58% revenue growth, just huge numbers here at $47 billion in the quarter here, and their order is even bigger. Beyond the headline numbers, we have the capacity to go a little bit deeper than that. Let's do that. So products were 92% of revenues. Services less important for this business at 8% of revenues. Now, the products sales just sold like crazy at 72% gains on a year-over-year basis. Services were steady. They were flat on a year-over-year basis. So I guess that's good. But this is a story of selling the stuff that their customers need, not just sending consultants in to plug computers into the wall here.

They break it down in lots of different ways, but one of the best ways, I think, is servers and networking and storage. And then their consumer products group, which is monitors. I have a Dell monitor right here, right next to me. You can't see it, but trust me, it's there. But Dell PCs, Dell laptops in particular, a big part of their revenues, mostly sold 27% into commercial business to business sales, 4% into consumers. Here, maybe reflecting expensive memory, raise the price of these goods. Consumers were waiting on those sales, but not the businesses. Let's dig a little bit deeper. So servers at server, business server, networking business up 91% on a year-over-year basis. And specifically within that, the AI-optimized servers up to $16.4 billion in revenues, 100% in a year-over-year basis. ISG up the record of $31.8 billion, and their operating margins also great at 15%. So NeoCloud, Sovereign, and Enterprise, not just the hyperscalers, NeoCloud, Sovereign, Enterprise customers, more than 6,500 of them buying from Dell. And their Power Rack, RackScale portfolio expanding, AMD, Intel, and Nvidia compute all coming from Dell. Now AI server orders also hitting $60.9 billion, orders of $60.9 billion in the quarter, $131.7 billion over the trailing year. It's incredible. A backlog of $95 billion in orders that they have yet to fill. Management said the Opportunity Pipeline was even bigger, multiples of the backlog. Opportunity Pipeline clearly is not a cap number here. But the notion of what they think they're going to be able to sell is frankly amazing here.

Fiscal Year 27 AI Server Revenue Guidance of $90 to $74 billion. They think it's a 3X grower on a year-over-year basis. Now, traditional servers and networking are also doing well. $10.5 billion at 122%. Dell's demand is still up pacing supply when it comes to those products. More than 10 points midstream server share gained over the past two quarters, they say.

So, their install base is just growing fantastically. And storage is also accelerating. 13% year-over-year revenue growth in their storage business. Think of that, that's the old EMC from back in the day.

$4.9 billion in the quarter up.

Just really powerfully on a year-over-year basis here. So, across the board, surging growth. Yeah, it's not what we saw last quarter, but servers and networking, the AI server business is the biggest driver in there. 91% growth on a year-over-year basis. Yes, I mentioned that the growth rate of sales growth in the selling PCs to the world of business, up 6% on a year-over-year basis. The growth rate is slowing significantly here. I think one of the most impressive numbers. So, when you look at hardware companies and you wanna look for problems, what do you look for? You look for inventory. And while their inventory is way up, so were their sales. So how do we think of this? When you think of days of inventory, there's only 52 days of inventory and over $20 billion of that inventory. How the market react? The market loves these numbers. And after-hours trading, stock up, I'm looking right now, 7%.