AI Sales Reshape Dicker Data’s Momentum

Small Caps | 11:29 AM

Dicker Data's record backlog, accelerating AI sales and expanding software business have prompted substantial upgrades to earnings forecasts.

• Dicker Data’s interim result proved much better than forecasts
• AI And Data Centres Drive Upgrades/Record backlog
• Rising AI sales contribute to margin pressure
• Stock is one of scarce AI exposures outside the ASX100

By Mark Woodruff

Analysts have materially raised their earnings forecasts and 12-month target prices for specialist hardware distributor and SME services provider Dicker Data ((DDR)) following the release of forecast-beating interim results in late August.

Despite four months of the period having been pre-reported, interim profit before tax (PBT), up by 50% on the prior period to $86m, came in 15% above the consensus estimate, with a record order backlog entering the second half of 2026.

Labelling the interim result “extraordinary”, Ord Minnett observes sales increased 14% to $2.1bn, beating consensus by 1% and clearly accelerating since the May trading update covering the period January to April.

Executive Chair and Managing Director Fiona Brown noted the company continues “to capture opportunities emerging from major technology refresh cycles, AI infrastructure investment and sustained demand across software and cybersecurity”.

While enterprises and cloud providers across A&NZ still need the usual servers, networking, and storage, AI adds an entirely new layer of requirements.

At the midpoint, 2026 profit guidance came in 12% above the consensus estimate and Jarden sees scope for a further 5%-7% upside.

Positives, according to the broker, include an improved outlook for 2027 gross margins and stronger revenue growth from 2027 as data-centre refresh activity continues and Dicker Data gains market share in the software category.

UBS notes healthy trading commentary by management across most divisions, with particularly strong momentum during July and August in Advanced Solutions, including data centres, and Software.

For reporting purposes, Dicker Data operates across Australia, New Zealand and Singapore and separately discloses sales across seven product categories: Software, End Point Solutions, Advanced Solutions, Retail, Audio Visual, Access and Surveillance, and Services.

Data-centre equipment and AI infrastructure are not separate reporting divisions. They are primarily captured within Advanced Solutions, although related software sales may fall under Software.

Software, End-point Solutions and Advanced Solutions are the company’s largest reporting divisions by gross sales.

Management expects endpoint sales to be broadly flat year-on-year in 2H26, offset by faster software and data-centre growth.

By working through resellers, the company has traditionally focused on small and medium-sized enterprises (SMEs), providing tailored support rather than chasing large-volume retail contracts.

Conservative guidance

Guidance assumes price increases weaken demand and margins come under pressure from a greater contribution by lower-margin AI sales and higher inventory replenishment costs in 2H26, explains Ord Minnett. Certainly, a guidance upgrade is anticipated if current demand momentum continues.

Macquarie equally considers FY26 guidance conservative (with midpoint profit still 15% above consensus and 9% above this analyst’s forecast), with management assuming only 7% half-on-half turnover growth and a -70bps margin decline.

It’s anticipated FY27 earnings growth will be supported by accelerating artificial intelligence (AI) sales, now at a $120m annualised run-rate, and data-centre refresh activity. Personal-computer revenue is expected to remain stable amid a record order backlog.

Margins

Back at the AGM trading update in May, management issued a January-April trading update at the AGM showing the net profit before tax margin rose to 3.7% from 2.9%, benefiting from the sale of lower-cost inventory.

Now, FY26 profit guidance implies to Macquarie a net margin of around 3.8%, below the 4.1% achieved in the first half.

As higher-priced inventory is replenished through the second half, margins are expected to come under pressure and normalise from current levels, UBS explains.

Over the first half, the gross margin (based on underlying gross sales) increased to 9.8% from the 9.5% reported at the AGM, representing 30bps of expansion and beating the consensus forecast by 5%.

This implies to Macquarie a gross margin of around 10.4% during May-June, approximately 90bps above the January-April level.

Management anticipates the 9.8% gross margin achieved in 1H26 to moderate in 2H26 due to not only higher inventory-replenishment costs, but also lower endpoint-device volumes and a greater contribution from lower-margin AI transactions.

Morgan Stanley forecasts the gross margin will normalise to 9.2% in the second half.

Industry and management discussions also prompted UBS to suggest Dicker Data’s margins have peaked.

UBS believes Dicker Data’s valuation already captures considerable optimism around the AI thematic and potential earnings upgrades.

The stock is seen trading at 21.9 times one-year forward earnings, a 30% premium to the ASX Small Ordinaries and 12% above its recent historical average.

AI infrastructure and data centre modernisation

AI infrastructure sales accelerated in the first half, with Dicker Data reporting more than $50m in 1H26, up from over $20m during the first four months disclosed at the May AGM, supporting management’s expectation for a rising revenue run-rate through FY26.

Management expects AI revenue to exceed $100m in 2026, supported by a substantial pipeline and further growth through 2027 and 2028.

These infrastructure transactions generate low-single-digit gross margins, meaning they increase gross-profit dollars but will probably dilute Dicker Data’s overall gross margin as revenue grows.

Data-centre modernisation is expected to remain one of the company’s strongest growth drivers through 2H26 and into 2027, supported by demand for networking, servers, storage, power and cooling.

Generating higher, high-single-digit gross margins, this type of modernisation refers to broader upgrade work across networking, conventional servers, storage, power and cooling.

In explaining how Dicker Data’s growth profile has improved materially and may have structurally strengthened over the short-to-medium term, Morgan Stanley cites key drivers including durable infrastructure hardware demand from Australia’s early-stage data-centre modernisation.

A rapidly expanding recurring software business and potential upside from the frequency and scale of AI contracts are also highlighted.

Software

Software is forecast to contribute 32% of 2026 revenue, up from less than 25% five years ago.

Software sales increased 18% in the first half, with around 80% of the growth generated organically, UBS highlights, led by Microsoft and accompanied by stronger margins.

Ord Minnett explains ongoing software demand is being supported by expanding business with not only Microsoft but also CrowdStrike and another four to five major vendors in Dicker Data’s pipeline.

The board declared a fully franked quarterly dividend of 11.5 cents, lifting total first-half dividends to 23cps from 22cps a year earlier.

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