TD SYNNEX delivered one of its strongest quarters on record Thursday, with fiscal third-quarter revenue and adjusted earnings comfortably exceeding Wall Street expectations as demand for data-center infrastructure accelerated. Investors were less impressed with how much cash the expansion required, sending the technology distributor’s shares sharply lower despite another strong outlook.
Revenue increased 37.7% from a year earlier to $21.56 billion, while adjusted earnings climbed 59% to $5.68 per share. Zacks’ consensus had called for $18.78 billion of revenue and adjusted earnings of $4.64 per share, putting the revenue beat near 15% and the earnings surprise above 22%. TD SYNNEX also reported record non-GAAP gross billings of $31.83 billion, up 40% from the prior year.
The strength was not enough to prevent a steep selloff. TD SYNNEX shares were down roughly 9% in afternoon trading Thursday after falling as low as $243.03 earlier in the session, compared with Wednesday’s $287.89 close. The reaction followed a powerful run into earnings: the stock had reached a 52-week high of $298.77 on Wednesday and had nearly doubled from its level at the start of the year.
The disconnect between the earnings beat and the stock reaction is concentrated in two areas. TD SYNNEX’s rapidly expanding Hyve Solutions business is generating extraordinary sales growth from AI and hyperscale infrastructure, but those programs require large inventories and significant working capital before they mature. At the same time, the changing sales mix is putting pressure on some margin measures.
Hyve Growth Comes With a Heavy Cash Requirement
Hyve, which designs and manufactures infrastructure for cloud and hyperscale customers, generated $3.80 billion of third-quarter revenue, up 52% from a year earlier. Gross billings more than doubled to $7.01 billion from $3.22 billion, while adjusted operating income increased 56% to about $253 million. Distribution also remained strong, with gross billings rising 27% to $24.82 billion and adjusted operating income increasing 55% to $483 million.
The faster-growing Hyve business is changing TD SYNNEX’s financial profile. Companywide gross profit increased 26% to $1.43 billion, but gross margin fell to 6.61% from 7.22% a year earlier as lower-margin business grew more quickly. Cost discipline helped offset that pressure farther down the income statement: adjusted operating income rose 55% to $736 million, lifting adjusted operating margin based on reported revenue to 3.42% from 3.03%.
Within Hyve, however, profitability measured against gross billings remains below last year’s level. Adjusted operating income represented 3.61% of Hyve gross billings in the third quarter, down from 5.04% a year earlier. Management attributed much of that dilution to large AI rack programs and said the mix pressure appears to have stabilized as newer programs ramp.
Cash flow is the more immediate concern. TD SYNNEX used $916.7 million of operating cash during the quarter and spent another $58.9 million on capital expenditures, producing negative free cash flow of $975.6 million. A year earlier, the company generated $213.9 million of free cash flow.
The cumulative investment is considerably larger. Through the first nine months of fiscal 2026, free cash flow was negative $2.24 billion, compared with a $32.7 million outflow during the same period last year. TD SYNNEX ended the third quarter with $6.5 billion of net working capital, while its gross cash-conversion cycle increased to 22 days from 17 days in the previous quarter and 16 days a year earlier. The company also recorded about $795 million of net borrowing during the quarter.
Management argues that much of the spending represents front-loaded investment required to support committed customer programs rather than a deterioration in the underlying business. CFO David Jordan said a significant portion of the working capital needed for expected Hyve growth is now in place, and TD SYNNEX expects to return to positive cash generation in the fourth quarter as inventory and newer customer programs begin to normalize.
Data-Center Demand Still Supports Another Strong Quarter
There is little evidence in the third-quarter results that data-center demand itself is weakening. CEO Patrick Zammit said the forecasts and backlog visible to TD SYNNEX do not currently indicate a slowdown, while available data-center capacity remains insufficient for existing demand. Management expects Hyve gross billings to increase again sequentially during the fourth quarter as new customer programs continue ramping.
The company is also expanding beyond individual hyperscale programs. TD SYNNEX and Mach3 Systems recently agreed to support an NVIDIA-based AI factory using Vera Rubin NVL72 systems, while management said several newly won Hyve programs are concentrated in networking infrastructure. Those programs are expected to contribute more meaningfully beginning in the fourth quarter and into early fiscal 2027.
TD SYNNEX’s fourth-quarter guidance reinforces the demand picture. The company expects revenue of $21.8 billion to $22.6 billion and non-GAAP gross billings of $31.4 billion to $32.4 billion. Adjusted earnings are projected at $5.65 to $6.15 per share, implying about $5.90 at the midpoint and roughly 54% year-over-year growth.
That outlook shifts the next test away from whether TD SYNNEX can find enough AI-related business. The company has already demonstrated that demand is available. The more important question is how quickly the working capital committed to that growth begins turning into cash.
Management expects positive cash generation in the fourth quarter and further improvement in Hyve’s cash conversion during fiscal 2027 as programs mature. After nearly $2.24 billion of free-cash-flow consumption through the first nine months of this year, that recovery will be closely watched. Another quarter of strong billings accompanied by heavy cash use would leave investors debating the economics of the expansion even if AI infrastructure demand remains robust.