CDW Q1 Sales Rise, but Margin Concerns Hit Shares

CDW delivered stronger-than-expected sales growth in the first quarter of 2026, but shrinking margins and investor worries over profitability overshadowed the company’s gains, sending shares tumbling nearly 20% on Wednesday.

CDW reports stronger sales and AI demand

The IT solutions provider reported rising demand for infrastructure hardware and AI-related technology projects as businesses ramped up spending on servers, storage, and networking products. 

In its earnings release Tuesday, CDW reported first-quarter net sales of $5.679 billion, up 9.2% from $5.2 billion a year earlier. The company said growth was fueled largely by stronger customer demand for “data storage and servers, netcomm products, software, and notebooks/mobile devices.”

Commercial sales rose 9.6% year over year to $3.569 billion, while the company’s UK and Canadian operations jumped 17.9%. Financial services customers delivered one of the strongest gains, with spending climbing 28.2%.

CDW CEO Christine A. Leahy said customers are increasingly moving beyond testing AI tools and into deploying them in real business environments.

“CDW delivered a strong first quarter, reflecting outcome-driven execution in a complex and fast-moving environment,” Leahy said in the company’s earnings release. “As customers move from AI exploration into real, production environments, they are increasingly relying on partners with the integration, governance, and lifecycle expertise to execute at scale.”

Margin pressure weighs on investor reaction

Despite the strong revenue growth, investors reacted to weakening margins. CDW’s gross profit margin fell to 21% from 21.6% a year ago. 

Operating income margin also declined to 6.6% from 7%. According to the company, the margin pressure came partly from a heavier mix of hardware sales and lower contributions from cloud and SaaS-related revenue streams, which typically carry higher profitability.

During the earnings call, CFO Albert J. Miralles said customers shifted spending priorities toward hardware amid ongoing pricing volatility and supply chain concerns.

“The need for and relevance of our cloud and services business remains high, but during this time of dynamic hardware pricing and supply chain concerns customers have shifted their spend priorities,” Miralles said, according to CRN.

The company’s operating income reached $376 million, up 4% year over year, while non-GAAP diluted earnings per share rose to $2.28 from $2.15. Still, investors appeared dissatisfied with profitability trends. Shares of CDW dropped about 20%, wiping billions off the company’s market value, according to CRN.

Hardware inventory rises amid supply chain concerns

CDW also revealed that it significantly increased hardware inventory during the quarter to keep up with customer demand. 

Miralles said the company boosted inventory by several hundred million dollars as customers rushed to secure products before potential price hikes tied to memory shortages and supply chain disruptions.

“Our inventory indeed was up in the quarter and really a reflection of who we are and how we operate in environments like this where customers have an urgency to get product,” Miralles said during the earnings call. 

Company filings showed merchandise inventory rose to $820.6 million at the end of March, up from $563.4 million at the end of December.

AI strategy remains central to CDW’s growth plan

Executives also used the earnings call to spotlight CDW’s broader AI strategy and internal transformation efforts. Leahy said the company’s “Geared For Growth” initiative aims to embed AI across operations to improve productivity and efficiency.

“At the end of the day, we’ve done a lot of foundational work over four years to get to the point now where we are able to be focused on AI first and our customer’s outcomes and in doing so super charge the power of the business through AI,” Leahy said during the call.

Miralles added that the initiative could generate between $100 million and $200 million in run-rate improvements by 2027 and 2028 through productivity gains and operational efficiencies, CRN reported.

The company also said it continues to evaluate mergers and acquisitions as part of its long-term growth strategy. Despite the market reaction, CDW executives maintained an optimistic tone about the rest of the year.

“In an environment defined by complexity and rapid technology change, CDW’s role as a trusted advisor has never been more relevant,” Leahy said in the earnings release. “With this foundation, we remain confident in our ability to exceed US IT addressable market growth by 200 to 300 basis points on a constant currency basis.”