CDW Corporation delivered a strong finish to 2025, exceeding expectations with Q4 net sales of $5.5 billion (+5%) and non-GAAP EPS of $2.57 (+4%). For the full year, the company achieved record non-GAAP EPS of $10.02 (+5%) on net sales exceeding $22 billion (+7%), demonstrating resilience despite significant macro headwinds including government shutdowns and tariff uncertainty. Performance was driven by double-digit growth in software, cloud, and professional services, while small business (+18%) and state/local government outperformed. Looking ahead to 2026, management targets low single-digit gross profit growth and mid-single-digit EPS growth, anticipating 200-300 basis points of market outperformance, while navigating memory pricing inflation and cautious customer sentiment.
| Metric | Value | Change |
|---|---|---|
| Q4 Net Sales | $5.5 billion | +5% year-over-year |
| Q4 Non-GAAP EPS | $2.57 | +4% year-over-year |
| Q4 Gross Margin | 22.8% | +50 basis points year-over-year |
| FY 2025 Net Sales | $22 billion | +7% year-over-year |
| FY 2025 Non-GAAP EPS | $10.02 | +5% year-over-year (record high) |
| FY 2025 Adjusted Free Cash Flow | $1.09 billion | 82% of non-GAAP net income |
| Small Business Growth | N/A | +18% year-over-year |
AI as a Pervasive Growth Driver: Management emphasized that AI is not a discrete revenue line but a 'pervasive' force embedded across hardware, software, and services. They cited success in both large enterprises (accelerated compute deployments) and small businesses (AI virtual agents), positioning CDW as a trusted integrator for secure AI deployment. This strategy leverages their 'architectural depth' and 'partner reach' to drive margin accretion.
Services-Led Margin Expansion: The company continues to shift its mix toward higher-margin services. Professional and managed services grew double digits, and 'netted down' revenues (cloud/SaaS) now represent 36.1% of gross profit. This mix shift supports gross margin expansion (22.8% in Q4) even in a hardware-heavy environment, validating their 'services-forward' model.
Small Business and Public Sector Resilience: Diversification proved key as Small Business grew 18% and State/Local government delivered double-digit growth, offsetting weakness in the Federal sector (due to the shutdown) and flat Corporate spending. This highlights the durability of CDW's diversified end-market strategy to navigate macro volatility.
Aggressive Capital Allocation: CDW returned 90% of adjusted free cash flow ($1B) to shareholders in 2025, well above its 50-75% target. The acquisition of Lexicon Tech Solutions signals a 'buy and build' strategy to enhance lifecycle capabilities, particularly in education, demonstrating disciplined use of capital to drive long-term value.
Memory Pricing and Supply Chain Uncertainty: Management flagged 'memory-related price increases' and potential supply constraints as a key risk for 2026. They noted the situation is 'fluid' and could dampen growth in the second half of the year, creating volatility in hardware margins and demand timing. This introduces significant uncertainty to the Q1 and Q2 revenue trajectory.
Corporate Segment Stagnation: The Corporate segment was flat to down 1% year-over-year. Management attributed this to Windows 11 refresh moderation and capital caution, but prolonged weakness in this largest segment would limit overall growth potential and raises concerns about enterprise demand elasticity.
Operating Margin Compression: Q4 non-GAAP operating margin declined 50 basis points to 9.1% due to higher SG&A (+14.6%). While management attributes this to variable comp and investments, the failure to leverage expenses in a quarter with strong top-line growth raises questions about the timeline for achieving the promised operating leverage in 2026.
Cautious 2026 Guidance: The guide for 'low single-digit' gross profit growth and 'mid-single-digit' EPS growth implies a deceleration from 2025 levels. Management cited 'lingering impacts' of government shutdowns and 'cautious customer behavior,' suggesting a sluggish demand environment persists that could constrain multiple expansion.
Overall: Management conveyed a tone of disciplined confidence and resilience. While acknowledging a 'complex' and 'dynamic' external environment, they consistently emphasized the strength of their diversified business model and their ability to execute strategically. There was a notable focus on 'prudence' regarding the macro outlook but high confidence in their specific AI and services strategies.
Confidence: HIGH - Management provided specific quantitative guidance and detailed strategic rationale. They used definitive language regarding their 'outperformance' and 'record' results, and directly addressed concerns about margins and growth with detailed explanations of their 'services-forward' model.
Management expects low single-digit growth for the full year 2026. They anticipate the second half will contribute slightly more to gross profit than the first half, citing a mix shift towards software and cloud in the latter half.
The company targets mid-single-digit year-over-year growth in non-GAAP net income per diluted share. This is predicated on achieving operating leverage and effective execution of capital allocation priorities.
Gross margin is expected to be 'slightly higher' than 2025 levels, remaining well above rates from three-plus years ago, despite the anticipated mix of products and solutions.
Anticipates a mid-single-digit sequential decline (seasonal) but mid-single-digit year-over-year growth. This view includes some demand pull-forward related to memory price increases and a slow start for the federal channel.
Hedging & Uncertainty: Management employed frequent hedging regarding the macro environment, using terms like 'complex,' 'dynamic,' and 'uncertain' to frame the market. They specifically hedged the 2026 outlook with 'wild parts include meaningful changes in known ongoing exogenous factors.' Regarding the memory pricing environment, language was highly qualified with descriptors like 'fluid,' 'could,' and 'might,' indicating low visibility on the duration and impact of price increases. However, hedging was minimal regarding their internal execution, where they used assertive language like 'we are laser-focused' and 'we will deliver.'
AI is not a discrete contributor. It is a pervasive one. - Christine A. Leahy, Chair and CEO
We currently look for the US IT market to grow in the low single digits in 2026. - Albert Joseph Miralles, CFO
The diversity of our customer end markets was clearly a driver of fourth quarter performance. - Christine A. Leahy, Chair and CEO
We are a cost-plus provider, and, therefore, we are passing through our gross margin. - Albert Joseph Miralles, CFO
We expect that we are going to have operating leverage... it's gonna be more significant in terms of progress down the P&L. - Albert Joseph Miralles, CFO
Analyst Sentiment: Analysts were inquisitive but generally constructive, focusing heavily on the sustainability of margins (Adam Tindle, Raymond James; Amit Daryanani, Evercore) and the specific mechanics of the memory pricing environment (David Vogt, UBS; Keith Housum, Northcoast). There was skepticism regarding the lack of historical outperformance compared to market growth (Erik Woodring, Morgan Stanley).
Management Responses: Management was direct and detailed, particularly CFO Al Miralles on the mechanics of 'netted down' revenues and cost-plus pricing. They defended the 'outperformance' narrative by explaining the mix shift to netted down revenues and emphasized the 'pervasiveness' of AI to address growth concerns. They were transparent about the 'fluid' nature of memory pricing but confident in their ability to pass through costs.
Memory Pricing Dynamics: Analysts sought clarity on the magnitude and duration of price increases. Management described it as 'fluid' and varying by partner but noted they are passing costs through as a 'cost-plus provider.'
Operating Leverage: Questions focused on why SG&A grew faster than sales and when leverage would appear. Management promised 'progressive' leverage through 2026 as they optimize the fixed cost base.
AI vs. Cloud Transition: Analysts asked for a comparison to the cloud transition. Management positioned AI as more complex and 'pervasive,' requiring deeper integration skills, and noted they are already seeing production-stage workloads.
Corporate vs. Small Business Divergence: Management explained the 18% growth in Small Business versus flat Corporate results by citing the difference in AI adoption maturity—SMBs are moving faster to packaged solutions while enterprises are still in experimentation/optimization phases.
CDW remains a best-in-class IT solutions provider with a resilient business model that successfully navigated a turbulent 2025. The investment thesis is underpinned by three pillars: (1) **Strategic Positioning in AI:** CDW is effectively pivoting from hardware resale to high-value AI integration and services, capturing share as enterprises move from experimentation to production. (2) **Financial Discipline:** The company generated record EPS and converted 82% of net income to free cash flow, enabling aggressive capital returns (90% payout). (3) **Margin Resilience:** Despite hardware mix shifts, gross margins expanded (22.8%), proving the power of their 'services-forward' model. **Critical Factors for Success:** (1) Successful execution on AI services engagements; (2) Maintaining gross margins amidst memory inflation; (3) Re-acceleration of Corporate segment spending. **Risks:** A prolonged federal spending slowdown or severe memory shortages could derail the low single-digit growth trajectory. **Valuation:** While 2026 growth guidance is conservative (mid-single digit EPS), the reliability of cash flows and high shareholder returns make CDW an attractive holding in a volatile market. The 'buy and build' strategy (Lexicon acquisition) further enhances capabilities. We recommend buying on weakness as the company is positioned to outperform the low-growth IT market by 200-300 bps.
The transcript highlights a specific inflationary dynamic in the IT supply chain: 'memory-related price increases.' Unlike previous shortages driven purely by demand, this appears to be a mix of supply constraints and pricing power by OEMs. Management noted this is 'fluid' and varies by partner, suggesting a fragmented supply landscape. This signals a potential headwind for IT spending in the first half of 2026 as customers 'pull forward' demand to hedge against rising costs, potentially borrowing from future quarters.
Management cited the 'lingering impacts of last year's government shutdown' and 'unexpected shifts in education and health care funding' as factors that shaped customer buying behavior in 'unconventional ways.' This suggests that fiscal policy uncertainty and government dysfunction are becoming persistent structural headwinds for the IT sector, particularly impacting federal spending timelines and budget allocations.