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Key Takeaways
- Morgan Stanley downgraded computer hardware makers because of the impact of soaring memory chip prices.
- The analysts said there’s a “supercycle” of prices for NAND and DRAM semiconductors, putting a drag on hardware maker earnings.
- Dell shares were the biggest decliner in the S&P 500 in afternoon trading Monday.
The artificial intelligence boom that’s sent memory chip prices soaring is hurting computer hardware makers, according to a report from Morgan Stanley, which downgraded some of the biggest names in the sector.
Shares of Dell Technologies (DELL) were down nearly 10% in afternoon trading Monday, leading decliners in the S&P 500. Hewlett Packard Enterprise (HPE) shares were down 8% recently, while HP (HPQ) slid roughly 7%.
Why This News Matters
Memory chip makers such as Micron are benefiting from surging AI-driven demand, but Morgan Stanley analysts warn that the spike in memory prices is squeezing computer hardware makers such as Dell, HP and Hewlett Packard Enterprise. Though hardware valuations remain near record highs, rising costs for components could apply pressure to profit margins.
Morgan Stanley analysts wrote in a note to clients that a pricing “supercycle” for NAND flash memory and dynamic-random access memory (DRAM) semiconductors “increasingly poses a downside risk to Hardware OEM earnings heading into 2026.”
They added that with hardware original equipment manufacturer (OEM) valuations already near all-time highs, “we believe it’s time to de-risk exposure” to global hardware original equipment manufacturers and original design manufacturers “where memory is a significant input cost.”
Morgan Stanley made a two-step reduction in its rating on Dell stock from “overweight” to “underweight.” It cut HP from “equal-weight” to “underweight,” and Hewlett Packard Enterprise from “overweight” to “equal-weight.” The analysts lowered ratings for several other companies as well but maintained their bullish outlook on some IT hardware firms, including Seagate Technology (STX) and Western Digital (WDC).
Just last week, Morgan Stanley referenced the skyrocketing prices of memory chips in making Micron Technology (MU) a “Top Pick,” which followed similar comments from Mizuho Securities.
