What's Happening?
Morgan Stanley has downgraded several hardware companies, including Dell and Hewlett Packard Enterprise (HPE), leading to a significant drop in their stock prices. Dell was downgraded from overweight to underweight,
while HPE was downgraded from overweight to equal weight. This decision comes amid rising costs in DRAM and NAND memory, which are expected to pressure margins. The downgrades have affected other companies such as HP Inc, Asustek, Pegatron, Gigabyte, and Lenovo, with their shares dipping as much as 6%. The memory cycle, characterized by increased prices for NAND and DRAM, is a significant factor in this development.
Why It's Important?
The downgrades by Morgan Stanley highlight the challenges faced by the computer hardware industry, particularly due to rising memory costs. This situation could impact earnings estimates for the global hardware OEM/ODM universe, where memory constitutes a significant portion of the product's bill of materials. The increased demand for AI infrastructure is exacerbating the situation by depleting memory supplies, leading to price hikes by major manufacturers like Samsung. This development could have broader implications for the tech industry, affecting pricing strategies and profit margins.
