IT solutions provider Connection (NASDAQ: CNXN) reported Q3 2026 results topping the market’s revenue expectations, with sales up 23.3% year on year to $874.3 million. Its non-GAAP profit of $1.24 per share was 19.2% above analysts’ consensus estimates.
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Connection (CNXN) Q3 2026 highlights:
- Revenue $874.3 million vs S&P analysts’ estimates of $773.7 million (23.3% year-on-year growth, 13% beat)
- Adjusted EPS $1.24 vs S&P analysts’ estimates of $1.04 (19.2% beat)
- Adjusted EBITDA $46.28 million vs analyst estimates of $40.55 million (5.3% margin, 14.1% beat)
- Operating margin 4.7%, in line with the same quarter last year
- Market capitalization $2.18 billion
StockStory’s take
Connection's third quarter was marked by robust demand across all core product categories, which management attributed to ongoing enterprise investment in digital workspace, modern infrastructure, and supply chain solutions. CEO Tim McGrath noted that endpoint devices, software, server storage, and networking all posted double-digit growth, with the company benefiting from customers accelerating purchases ahead of anticipated price increases. Management highlighted exceptional performance in the Business Solutions and Enterprise Solutions segments, as well as strong customer engagement in healthcare, financial services, and manufacturing.
Looking forward, Connection’s outlook is shaped by evolving trends in AI-driven technology investment and an expected moderation in endpoint device demand. Management believes that while the recent device upgrade cycle is largely complete, underlying demand for on-premises infrastructure, networking, security, and related services will remain solid. The company is positioning itself to capitalize on enterprise modernization and AI adoption, with McGrath stating, “We expect to continue some of these trends, but since it might be a little down from 2026.”
Key insights from management’s remarks
Management attributed third quarter outperformance to a combination of broad-based demand, large-scale deployments, and growth in key verticals, while also noting margin pressures from customer and product mix.
- AI fuels enterprise spending: The surge in enterprise interest in artificial intelligence (AI) drove increased investment in both hardware and software, as organizations sought AI-ready infrastructure and devices. Management emphasized that demand for AI integration was particularly pronounced in server storage and networking, both up over 40% year-on-year.
- Broad-based growth across segments: All three business segments—Business Solutions, Enterprise Solutions, and Public Sector Solutions—delivered year-on-year sales growth. Enterprise Solutions saw record net sales and backlog, supported by technology modernization projects and strong customer engagement, while Business Solutions benefited from large deployments and endpoint refresh cycles.
- Vertical market strength: Healthcare, financial services, and manufacturing were key contributors to growth, with healthcare net sales up 34%. Management pointed to a shift toward value-based care and data analytics in healthcare, operational improvements in manufacturing, and digital transformation in financial services as main drivers.
- Margin pressure from mix shifts: Gross margin declined due to a higher proportion of large project rollouts and a customer mix skewed toward lower-margin endpoint devices. CFO Tom Baker explained that about half the margin decline was related to accounting for software sales, while the rest reflected customer and product mix dynamics.
- Operational discipline and investment: Management highlighted a continued focus on efficiency and targeted investment in platform modernization, sales of advanced technologies, and marketing. SG&A expenses increased in absolute terms but fell as a percentage of sales, reflecting operating leverage from higher revenue and disciplined expense management.
Drivers of future performance
Connection anticipates a moderation in endpoint device demand but expects AI-driven infrastructure and services to sustain growth.
- AI and infrastructure investment: Management sees ongoing demand for enterprise AI adoption and data center modernization as critical drivers for future revenue. The company is prioritizing solutions that enable customers to deploy AI at scale, including multicloud, cybersecurity, and technical services, aiming to offset a projected slowdown in device refresh cycles.
- Customer spending behavior: While some customers accelerated technology purchases to get ahead of price increases, others delayed upgrades, extending the lifecycle of existing assets. Management expects these mixed behaviors to continue, potentially resulting in a more tempered demand environment for endpoint devices in the coming year.
- Margin and pricing pressures: The company anticipates ongoing margin pressure due to customer and product mix, with large-scale rollouts and lower-margin devices likely to persist. Management is watching for changes in supplier partner programs and remains alert to shifts in competitive pricing, particularly as AI continues to drive overall IT investment.
Catalysts in upcoming quarters
Looking ahead, the StockStory team will be monitoring (1) the pace of AI-related infrastructure deployments and whether demand for data center modernization persists; (2) the ability of Connection to sustain growth in key verticals such as healthcare and manufacturing; and (3) the evolution of customer spending patterns as the device refresh cycle slows. We will also track developments in supplier relationships and any updates to partner program structures.
Connection currently trades at $89.09, up from $86.50 just before the earnings. Is there an opportunity in the stock? Find out in our full research report (it’s free).
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