TD SYNNEX Corp (SNX) stock fell sharply Thursday even after the company reported fiscal third-quarter 2026 results that beat Wall Street expectations and issued stronger-than-expected guidance.

The stock remains up 68% over the past 12 months.

Investors appeared to focus on negative free cash flow, a sizable working-capital build and contracting gross margins as TD SYNNEX rapidly expands its Hyve Solutions business.

TD SYNNEX Beats Q3 Estimates

Adjusted EPS rose 59% year over year to $5.68, beating the $4.70 estimate. Revenue jumped 37.7% to $21.56 billion, beating the $18.91 billion estimate.

GAAP diluted EPS increased to $5.18 from $2.74.

Non-GAAP gross billings reached a record $31.83 billion, up 40% and above the high end of management's guidance.

Gross profit increased 26.2% to $1.43 billion. However, gross margin contracted 61 basis points to 6.61%.

Non-GAAP operating income rose 55.1% to $736 million, while its operating margin expanded 39 basis points to 3.42%.

Hyve Growth Pressures Cash Flow

Hyve Solutions revenue climbed 52% to $3.8 billion, while gross billings more than doubled to $7 billion. Non-GAAP operating income increased 56% to $253 million.

CEO Patrick Zammit said Hyve's gross billings exceeded management's expectations as hyperscaler programs continued to scale.

However, the rapid expansion weighed on cash generation. Management attributed about $1 billion of free cash flow consumption to higher Hyve inventory and ramps for new customers and programs.

Net working capital reached $6.5 billion. The gross cash conversion cycle increased to 22 days, up five days sequentially and six days from a year earlier.

TD SYNNEX used $916.7 million of operating cash and reported negative free cash flow of $975.6 million. The company ended the quarter with $749.3 million in cash and a 1.9-times net leverage ratio.

AI Infrastructure Opportunity Expands

During the earnings call, Zammit said TD SYNNEX sees no signs of weakening data center demand, noting that available capacity still falls short of customer needs.

Management also highlighted an agreement with Mach 3 Systems supporting an NVIDIA AI factory powered by Vera Rubin NVL72 systems.

TD SYNNEX said it also secured new Hyve customer programs that are expected to use its expanded manufacturing capacity.

The company separately expanded its IBM relationship into 20 additional countries across Europe, Asia Pacific and Latin America.

Q4 Outlook Beats Estimates

For the fourth quarter, TD SYNNEX expects adjusted EPS of $5.65 to $6.15, above the $4.87 estimate.

Revenue is expected at $21.8 billion to $22.6 billion, also above the $19.36 billion consensus estimate. Non-GAAP gross billings are projected at $31.4 billion to $32.4 billion.

SNX Price Action: TD Synnex shares were down 12.40% at $252.19 at the time of publication on Thursday, according to market data.