Dell has achieved a historic milestone: its datacenter business, led by the Infrastructure Solutions Group (ISG), has finally surpassed its PC business in revenue for the first time in the company’s history. This shift marks a pivotal moment in Dell’s evolution, driven by the explosive growth of generative AI and the increasing demand for high-performance computing infrastructure. In the second quarter of fiscal 2026, which ended on August 1, Dell reported total revenue of $29.78 billion, a 19% year-on-year increase. The standout performer was ISG, which generated $16.8 billion in sales—up 44.3% from the same quarter last year. This growth was fueled by a massive 68.7% surge in server and networking revenue, reaching $12.94 billion, and strong demand for AI systems. AI server sales alone hit $8.1 billion in the quarter, a 2.6X increase from the prior-year period, driven by large-scale deployments for enterprise clients like CoreWeave and xAI. Dell’s AI system backlog stood at $11.7 billion at the end of the quarter, down from $14.4 billion in the prior quarter but still 3.1 times higher than the year-ago level. Jeff Clarke, Dell’s chief operating officer, highlighted that the company had its strongest AI quarter yet with enterprise customers, noting a double-digit increase in both the number of customers and the size of deals. He emphasized that the pipeline now includes over 6,700 unique opportunities, with a growing share of demand coming from enterprise and sovereign (government-backed) clients—particularly for Blackwell-based systems, air-cooled configurations, and PCIe-based solutions. Despite the impressive revenue growth, ISG’s operating income rose only 14.5% to $1.47 billion, representing an 8.8% margin—its lowest in five quarters. This suggests that Dell is absorbing significant one-time supply chain costs related to reconfiguring its production for AI hardware, including expedited materials and logistics. However, Clarke indicated that these pressures are expected to ease in the second half of the fiscal year, with potential for margin improvement through value engineering and better scaling. Meanwhile, Dell’s traditional PowerEdge server business grew just 3.8% to $4.75 billion, underscoring that AI-driven sales now exceed legacy server demand in the current quarter. Still, the traditional server market remains robust, with over 70% of Dell’s installed base running systems two generations or older—setting the stage for a potential upgrade cycle that could balance the AI revenue spike. Looking ahead, Dell has raised its forecast for fiscal 2026, now projecting at least $20 billion in AI system sales for the full year. While Q2 may be the peak for AI server shipments, the company expects the two segments—AI and traditional servers—to roughly balance out over the course of the year. ISG is expected to grow in the mid-to-high 20% range for the full fiscal year. Dell’s strategic positioning has been key. Unlike many peers that are forced to dilute margins by selling Nvidia-based AI systems, Dell has leveraged its scale, manufacturing capabilities, and strong relationships with enterprise and government clients to secure major AI deals. Its focus on U.S.-based manufacturing and supply chain resilience has also made it a preferred partner amid geopolitical concerns. While the AI boom has transformed Dell’s business model, the company’s long-term success will depend on its ability to maintain margins, expand services and storage attach rates, and navigate the cyclical nature of server upgrades. For now, however, Dell stands at the forefront of the AI infrastructure revolution—finally turning its datacenter division into the engine of its growth.