Dell, Seagate, others in focus as Morgan Stanley says ‘stay the course’ for 2025

With the calendar rapidly approaching 2025, Morgan Stanley said investors in the IT hardware space should “stay the course” from their approach in the second-half of this year.

“We forecast hardware growth accelerating in ’25, and are more bullish on enterprise vs. consumer end markets,” analysts at the firm said. Excluding Apple (NASDAQ:AAPL), hardware valuations are at an all-time high of 19 times earnings, despite revenue and earnings range ranging between 4% and 7%, much of that already being priced in.

“We are optimistic that spending growth in most hardware end-markets should improve in 2025,” the analysts continued, stating that enterprise hardware growth should be around 3%.

Conversely, enterprise budget growth this year is likely to be around 1.7% year-over-year, between 20 and 160 basis points below historical cycles. Nonetheless, their optimism for next year lies in the belief of an acceleration in enterprise spending growth, as well as a consumer recovery, with areas like PCs, PC peripherals, storage and servers benefiting.

Additionally, the firm’s recent AlphaWise US Consumer survey pointed to the “least negative” six month consumer electronics spending intention in three and a half years.

Where to do in ’25

With that said, Morgan Stanley told investors to continue to own Apple (the firm’s top pick), along with Dell Technologies (NYSE:DELL), Seagate Technology (NASDAQ:STX) and Kornit Digital (NASDAQ:KRNT).

Conversely, the stocks of companies like Garmin (GRMN), Cricut (CRCT), GoPro (GPRO) have seen their valuations “run too far,” while others like Xerox (XRX) are in “secularly declining end markets,” the analysts said.

Other hardware stocks, like CDW (CDW), Ingram Micro (INGM) and Logitech (LOGI) may be “potentially undervalued ways to play a more robust cyclical recovery in 2025,” while IBM (IBM) is a stock that could face headwinds, given its valuation “and a negatively-skewed risk/reward.”