- Morgan Stanley shifts its outlook on North American IT hardware from “in-line” to “cautious,” weighing on major stocks.
- Latest industry surveys point to the weakest non-pandemic growth in hardware budgets in about 15 years.
What happened: Morgan Stanley downgrade weighs on hardware stocks
U.S. information-technology hardware shares declined sharply on Tuesday after leading Wall Street bank Morgan Stanley downgraded its view on the sector, warning that slowing enterprise demand and rising component costs could dent performance.
In its latest research, the bank cut its North American IT hardware industry rating to “cautious” from “in-line”, reflecting concerns that corporate technology buyers are trimming hardware spending plans amid economic uncertainty.
The move weighed on shares across the industry: Dell Technologies, Hewlett Packard Enterprise, and HP Inc. all slid between around 2–5 per cent, while peripherals maker Logitech and storage specialist NetApp saw pre-market drops after Morgan Stanley changed their ratings to “underweight.”
Morgan Stanley’s latest survey data showed companies now expect only about 1 per cent year-on-year growth in IT hardware budgets for 2026 — the weakest forecast outside the pandemic period in roughly 15 years — driven by cost pressures and cautious spending plans.
Separate channel checks of value-added resellers suggested that 30–60 per cent of customers may cut planned purchases of PCs, servers, and storage equipment in response to higher prices tied to component cost inflation.
Although demand for AI-related infrastructure has remained a positive undercurrent for some manufacturers, broader headwinds — including tariff uncertainties and memory cost inflation noted by other analysts — are dampening confidence.
Why it’s important
This shift in sentiment from a major broker reflects real-world changes in corporate IT budgets — a key driver of long-term hardware demand. When CIOs reduce spending on core equipment, it can signal a broader slowdown in enterprise IT investment that affects revenues across the supply chain.
A cautious industry outlook also raises the risk of earnings estimate revisions for hardware vendors if cost inflation persists and demand weakens further.
Investors should watch whether reduced budget forecasts materialise in quarterly results and if demand for AI-driven upgrades can offset declines in traditional hardware categories.
The downgrade underscores how macroeconomic pressures — from inflation to tariff policy — continue to shape the tech sector’s trajectory, with implications beyond the hardware makers directly cited in this post.
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