IT solutions provider Connection (NASDAQ: CNXN) beat Wall Street’s revenue expectations in Q2 CY2026, with sales up 12.4% year on year to $854 million. Its non-GAAP profit of $1.31 per share was 26% above analysts’ consensus estimates.

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StockStory’s Take

Connection’s second quarter was marked by broad-based sales growth and positive market reaction, as management pointed to a surge in demand for modern workplace technologies and enterprise-wide AI adoption. CEO Timothy McGrath highlighted that customers are increasingly seeking integrated solutions spanning infrastructure, security, cloud, and AI, which contributed to notable gains in notebooks, desktops, and software. He cited a 19.5% rise in endpoint device sales and double-digit growth across key technology categories as primary drivers of the quarter’s outperformance, further supported by strong execution amid ongoing supply chain dynamics.

Looking forward, Connection’s outlook is anchored by continued investments in data center modernization, elevated backlog levels, and a broad customer pipeline for AI-ready infrastructure. Management sees sustained momentum as organizations accelerate Windows 11 migrations, refresh device fleets, and invest in cybersecurity and cloud platforms to support emerging workloads. McGrath emphasized, “We continue to see strong customer engagement as organizations modernize their data centers, refresh AI-ready endpoints, strengthen their security posture, and prepare their environments for enterprise AI,” suggesting ongoing demand despite some variability in procurement cycles.

Key Insights from Management’s Remarks

Management attributed the quarter’s growth to robust demand for modernization across verticals and early-stage AI integration, while noting that customer purchasing patterns varied due to price increases and ongoing supply chain factors.

• Endpoint and device momentum: Strong demand for notebooks, mobility, and desktop products was fueled by higher average selling prices and a modest increase in unit sales, reflecting the early stages of a device refresh cycle and greater customer focus on workplace modernization.
• Sector growth diversification: Retail, healthcare, financial services, and manufacturing all posted double-digit sales gains, with retail leading due to significant investments in networking, security, and AI-capable endpoints. Each vertical showed unique drivers, such as compliance and operational efficiency in healthcare and cybersecurity priorities in financial services.
• Backlog at multi-year highs: Both the Business Solutions and Enterprise Solutions segments ended the quarter with record or near-record backlogs, indicating strong ongoing demand despite some customers pulling forward purchases or delaying orders due to budget cycles or supply constraints.
• Margin management amid inflation: Management noted effective margin preservation despite inflationary pricing in several product categories, particularly in mobility and desktop segments, with efforts to pass on costs and maintain profitability through disciplined execution.
• Supply chain and procurement headwinds: While Connection successfully navigated most supply chain disruptions, the company experienced mixed customer procurement behavior, including accelerated purchasing in response to anticipated price increases and strategic inventory commitments designed to secure future supply.

Drivers of Future Performance

Connection expects future performance to be driven by elevated device refresh activity, ongoing data center upgrades, and increased adoption of AI-ready solutions, while supply chain and customer procurement cycles remain key watchpoints.

• Enterprise AI readiness: Management believes enterprise customers will continue to prioritize infrastructure modernization to support AI adoption, with demand for compute, storage, networking, and cloud foundational to enabling new data-intensive workflows and business applications.
• PC refresh and software upgrades: The ongoing migration to Windows 11 and the need to replace aging endpoint devices are seen as catalysts for sustained demand, with McGrath pointing to a continuation of these trends through 2026 as organizations seek enhanced security and performance.
• Supply chain and backlog dynamics: While the company’s backlog remains historically high and supports near-term visibility, management cautioned that variability in procurement cycles and lingering supply chain constraints could influence the timing of revenue recognition and inventory turnover in subsequent quarters.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace at which backlog is converted into sales, particularly in Enterprise and Business Solutions, (2) the impact of ongoing PC refresh cycles and Windows 11 migrations on device and software demand, and (3) the evolution of supply chain conditions and customer procurement patterns. Progress in expanding AI-ready infrastructure and the company’s ability to manage inventory levels will also be key to sustaining growth.

Connection currently trades at $84.63, up from $82.97 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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