Computer hardware stocks fell sharply on Monday after Morgan Stanley issued a broad set of downgrades across the sector, citing rising memory costs and mounting margin risk.
Dell was cut two notches from overweight to underweight, while Hewlett Packard Enterprise (HPE) was lowered from overweight to equal weight. Shares of both closed down 8% and 7%, respectively.
Morgan Stanley also downgraded HP Inc, Asustek, and Pegatron to underweight, while trimming Gigabyte and Lenovo from equal weight to overweight. Each saw declines of up to 6% during the session.
The concern: a pricing “supercycle”
Analysts warned that hardware makers are entering an unprecedented pricing cycle as hyperscalers continue to accelerate their data-center buildout. That surge in demand is pushing valuations to record highs and straining supply chains — particularly for DRAM and NAND memory.
The bank said memory fulfillment rates could fall as low as 40% over the next two quarters, putting pressure on OEM margins, since memory accounts for anywhere from 10% to 70% of hardware bill-of-materials costs.
Memory suppliers have been raising prices sharply as AI infrastructure spending drains inventory. Samsung has increased chip prices by as much as 60% since September, according to Reuters.
Echoes of the last memory squeeze
Analysts pointed to 2016–2018, when DRAM and NAND spot prices jumped 80%–90%. Device makers struggled to offset rising component costs, resulting in compressed gross margins and weaker stock performance across the sector — except among companies able to pass higher prices directly to customers.
Dell was highlighted as one of the most exposed manufacturers. During the last memory cycle, its gross margin contracted by 95 to 170 basis points. As a major builder of Nvidia-powered AI systems — including for cloud firms like CoreWeave — its margin profile is tightly linked to memory pricing.
Outlook: margin pressure for the next 12–18 months
Morgan Stanley expects rising DRAM and NAND costs to weigh on hardware makers well into 2026. Companies with stable or expanding margins are likely to outperform, analysts said, while those with heavy exposure to memory inputs could lag despite solid demand.
Featured image credits: Ajay Suresh via Wikimedia Commons
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