Morgan Stanley has downgraded an array of original equipment manufacturers and original design manufacturers due to the surging prices of NAND and dynamic random access memory.
“Memory (NAND and DRAM) — a key cost component for servers, storage arrays, PCs, smartphones, etc. — is in the midst of a pricing ‘supercycle’, driven by accelerating demand from hyperscalers, mix shift to high bandwidth memory, and recent underinvestment in NAND,” wrote Morgan Stanley analysts, led by Erik Woodring, in an in-depth market report. “Spot prices for these commodities are up 50-300% in just the last 6 months, contract prices for each commodity could be up double-digits (%) every quarter through CY26, and recent reports indicate memory fulfillment rates could fall to as low as 40% over the next two quarters.”
Morgan Stanley said this could lead to compressed margins for a range of hardware providers during the upcoming calendar year. As a result, the financial firm downgraded multiple OEM and ODM companies.
Dell Technologies (DELL) received a double downgrade to Underweight from Overweight, and its price target was reduced to $110 from $144. Shares had dropped 6% during pre-market trading on Monday.
Hewlett Packard (HPQ) was downgraded to Underweight from Equal-weight, and its price target reduced to $24 from $26. It was down 4%.
Meanwhile, Hewlett Packard Enterprise (HPE) was downgraded to Equal-weight from Overweight and its price target was lowered to $25 from $28. Its shares had also dropped about 4% during early trading.
However, OEM’s such as Apple (AAPL) and Pure Storage (PSTG) appear better insulated from the volatile memory prices.
“We believe DELL and HPQ are ‘most-vulnerable’ amongst the US OEMs given higher DRAM exposure, more cautious recent channel checks, and lower operating margins vs. peers, while PSTG and AAPL are ‘most insulated’ amongst the group given differentiated business models and/or more software mix,” Woodring said. “We’d highlight AAPL is our only OW-rated OEM in US Technology Hardware.”
Morgan Stanley increased its price target on Pure Storage to $90 from $72.
As the double downgrade suggests, Dell looks to be most affected by the leap in memory pricing.
“We were already embedding margin pressure from mix shift to AI servers in FY27; however, we now forecast gross margins of 18.2% in FY27, down 220bps from our prior forecast and down 240bps Y/Y,” Woodring noted.