①As DRAM and NAND prices surge rapidly, Morgan Stanley downgraded ratings for several equipment manufacturers; ②Among them, Dell Technologies faced a 'double downgrade,' triggering a new wave of sell-offs; ③In contrast, Morgan Stanley believes Apple and Pure Storage benefit from differentiated business models, offering greater resilience against the impact of the memory 'super cycle.'
As memory prices surge and non-AI hardware demand weakens, Morgan Stanley significantly downgraded the ratings of major hardware manufacturers such as Dell Technologies (DELL.US), HP Inc (HPQ.US), and Hewlett Packard Enterprise (HPE.US) on Monday, warning that the entire industry is facing mounting margin pressure.
Morgan Stanley analysts pointed out that the industry is currently in a 'memory supercycle,' with spot prices for NAND and DRAM rising approximately 50% to 300% over the past six months. The rapidly escalating component inflation is expected to continue weighing on the profitability of hardware manufacturers, with impacts extending into 2026.
The firm stated that, based on historical experience, hardware OEM gross margins typically decline 6 to 12 months after memory costs begin to rise. The median global OEM gross margin is projected to decrease by 60 basis points in 2026, contrasting with the broader market expectation of slight expansion.
Dell Technologies and HP Inc are considered the most sensitive to rising memory prices due to their heavy reliance on memory-intensive PC and server products. Hewlett Packard Enterprise, meanwhile, faces dual pressures from acquisition integration challenges and rising component costs.
On Monday, $Dell Technologies (DELL.US)$ 、 $Hewlett Packard Enterprise (HPE.US)$ Both fell more than 6% during trading.
However, Morgan Stanley also noted that Apple and storage hardware manufacturer Pure Storage appear more resilient to memory price fluctuations. Apple remains the only U.S. technology hardware company for which the bank maintains an 'Overweight' rating, while Morgan Stanley raised Pure Storage’s target price from $72 to $90.
Erik Woodring commented, 'Among U.S.-based OEMs, we believe Dell and HP are the most 'vulnerable' due to their higher exposure to DRAM, more cautious recent channel checks, and relatively lower operating margins compared to peers. In contrast, Pure Storage and Apple stand out as the 'most defensive' companies in this group, thanks to their differentiated business models and/or higher software revenue contributions.'
Dell Downgraded to 'Underweight' with Target Price Reduced from $144 to $110
Morgan Stanley downgraded Dell Technologies from 'Overweight' to 'Underweight,' a two-notch reduction, citing rising memory costs compounded by structurally lower profit margins in AI servers, which are pressuring the company’s near-term earnings outlook. The report identified Dell as 'one of the stocks most severely impacted by rising memory costs,' slashing its fiscal 2027 gross margin forecast to 18.2%, 220 basis points below prior estimates. Analysts also reduced Dell's earnings per share (EPS) projection by approximately 12%, noting that even with a significant increase in AI server revenue next year, overall profitability will remain under pressure.
HP Inc Downgraded to 'Underweight' as PC Refresh Cycle Fails to Offset Memory Price Erosion
HP Inc was downgraded from 'Equal-weight' to 'Underweight,' with the target price reduced from $26 to $24. While analysts acknowledged stabilization in the PC replacement cycle, rising DRAM and NAND prices are expected to squeeze profit margins in the company's Personal Systems business. Morgan Stanley cut its fiscal 2026 gross margin forecast by 90 basis points to 19.7%, 130 basis points below market consensus. Despite raising revenue expectations for the fiscal year to $56.5 billion, the EPS forecast was lowered by 9%.
Hewlett Packard Enterprise Downgraded to 'Equal-weight' Following Reduced Profit Outlook Post Juniper Networks Acquisition
Morgan Stanley downgraded Hewlett Packard Enterprise's rating from 'Overweight' to 'Equal-weight' and reduced its target price from $28 to $25. Although the acquisition of Juniper Networks is expected to increase the company's network business share, analysts emphasized that the integration process and rising component costs will limit overall profitability. The forecast for gross margin in fiscal year 2026 has been cut by 260 basis points to 32.9%, with EPS revised downward from $2.52 to $2.18.
Morgan Stanley noted that even if manufacturers attempt to offset cost pressures by raising prices, cutting other material costs, or reducing operating expenses, they can typically only mitigate about 70% of memory inflation. Analysts estimate that for every 10% increase in memory prices, gross margins will decline by 10 to 40 basis points despite mitigation measures; without such measures, the impact could reach up to 130 basis points.
Model projections indicate that Dell Technologies and HP Inc remain the two U.S. hardware companies most affected by rising memory prices, topping Morgan Stanley's 'most vulnerable list.' The firm pointed out that vendors such as Dell, HPE, and HPQ will reveal in non-earnings updates later this year when rising memory costs begin to erode profits significantly. Historical data shows that component inflation typically reflects in corporate performance within two to three quarters. The institution also emphasized a preference for technology companies with higher diversification or greater software exposure in the current cycle, warning that tight memory supply and high prices will pose heightened downside risks for the industry through 2026.
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