CDW reported Q2 2026 sales of $6.6B with 12% EPS growth on AI and infrastructure spending, but gross margin slipped 70 bps.
CDW delivered record second-quarter 2026 results, powered by booming AI infrastructure demand that pushed net sales to $6.6 billion—a 10% increase year-over-year—and non-GAAP EPS to $2.91, up 11.9%. Gross profit rose 6.3% to $1.3 billion, but gross margin contracted 70 basis points to 20.1% as the sales mix shifted toward lower-margin hardware and large enterprise deals.
"These results demonstrate the strength and resilience of CDW's business model in a dynamic technology environment shaped by growing AI complexity, pricing volatility, and ongoing memory challenges," said Chair and CEO Chris Leahy.
Hardware revenue jumped 10%, with servers, storage, and networking all posting double-digit gains; notebooks and desktops together climbed 10% despite price increases that compressed unit volumes. Software revenue grew in the low double digits, fueled by security applications and storage/networking management. Services, however, lagged at just 1% growth, a timing issue CDW attributes to deployment schedules as customers prioritize hardware and cloud investments over immediate services engagement.
Crucially, netted-down revenue streams—recurring and annuity-like revenues—surged 16.1% to represent 35.9% of gross profit, up 300 basis points year-over-year, signaling that durable services growth is being laid as infrastructure installs transition toward integration and managed services.
"The strategic point is that AI is increasing complexity across the technology stack," said CFO Al Morales. "Customers are evaluating infrastructure, cloud, security, data, and endpoint investments as part of broader modernization programs, and that complexity reinforces the value of CDW's full stack, full lifecycle model."
Across end markets, Government net sales jumped 14%, driven by an improving federal environment and steady state and local demand. International operations rocketed 23%, with Canada posting a record quarter and the U.K. delivering mid-teens local-currency growth. Commercial, the largest segment, rose 9%, with corporate accounts climbing 11% on modernization and AI readiness projects; healthcare added 9%, and financial services managed 2% growth. Education lagged at 1%, with K-12 healthy but higher education constrained by limited funding.
CDW repurchased $344 million in shares during Q2 and $545 million year-to-date under a $1 billion authorization, with over $1.1 billion in remaining buyback capacity. Leverage stood at 2.5x net debt, comfortably within the 2–3x target. Year-to-date adjusted free cash flow of $278 million represented just 42% of non-GAAP net income, dragged down by a roughly $400 million inventory build since year-end; management expects normalization in the second half as supply chains stabilize.
Management raised full-year guidance, now projecting mid-single-digit gross profit growth and non-GAAP EPS at the high end of high single digits, with the U.S. IT addressable market expected to grow mid-single digits and CDW outperforming by 200–300 basis points. For Q3, gross profit should rise mid-single digits while SG&A is expected to decline sequentially through "Geared for Growth" efficiency initiatives.
The quarter also brought news that CFO Al Morales plans to retire in 2027 after the appointment of a successor, with a smooth transition underway. "It has been a privilege to serve as CDW for the last five years," he said.
On the margin compression, Morales clarified during Q&A that there was no like-for-like erosion: "The driver was mix into infrastructure products, mix at larger dollar-tier orders, and more enterprise customers." He emphasized that underlying metrics remain strong and management intends to outperform guidance. "Written production is exceeding invoicing and backlogs remain elevated," Morales noted, though the forecast bakes in some caution given typical prudence.
Leahy highlighted AI adoption scaling across CDW's offerings: "AI is part and parcel of most of what we're selling—from hardware to software implementation and certainly the services we bring to bear." He cited a multimillion-dollar AI governance deal with a Western state and a multimillion-dollar AI security vulnerability program for a large financial services firm as proof of the full-stack strategy. On questions about workload repatriation, Leahy affirmed the trend of customers optimizing token costs by pulling workloads on-premises but stressed CDW benefits either way: "We're going to help our customers optimize wherever their workloads should be. It's not an either/or; it's about optimizing for cost, security, quality, and output."
Regarding the delayed services ramp, Leahy said visibility remains good: "It is really purely timing and implementation timing. We have good visibility to where those needs are. By the end of the year and into 2027, we'll see the fruits of that labor."
CDW's record Q2 was driven by a powerful but margin-dilutive infrastructure cycle. The company's narrative of "hardware first, services later" appears on track, with a swelling backlog and services pipeline poised to convert. As Leahy concluded: "Technology evolves. Customer priorities change. Our value proposition endures."