Morgan Stanley Downgrades Major Data Center Stocks, Sparking Market Reactions

NEW YORK, NY — Data center stocks experienced significant losses on Monday following Morgan Stanley‘s downgrade of several leading hardware companies, including Dell Technologies and Hewlett Packard Enterprise (HPE). The bank downgraded Dell from overweight to underweight, resulting in an 8% decline in its shares. HPE was also downgraded, falling 7%.

In total, Morgan Stanley downgraded seven hardware companies, citing concerns about an unprecedented pricing ‘supercycle’ for computer components amid rising costs for DRAM and NAND memory.

Analysts noted that as demand from hyperscalers continues to escalate, hardware valuations have surged, pushing the limits of affordability. The report warned that rising memory prices may compress profit margins for these companies, particularly as fulfillment rates could drop as low as 40% over the next two quarters.

“This is a significant emerging risk to our earnings estimates for the hardware sector as memory costs account for 10-70% of a product’s cost,” the Morgan Stanley analysts explained. They likened the current situation to the memory price increase from 2016 to 2018, during which hardware profits suffered amidst rising input costs.

Based on current projections, analysts expect Dell’s margins to weaken further in the coming 12 to 18 months due to its high exposure to memory cost fluctuations. Memory chip prices, particularly from major manufacturers like Samsung, have reportedly surged by as much as 60% since September, intensifying the pressure on tech firms reliant on these components.

As stock markets saw declines—calling into question the sustainability of tech valuations—major indexes finished lower. The S&P 500 dropped by 0.9%, while the Dow Jones Industrial Average fell by 1.2%. Meanwhile, Bitcoin dipped to around $91,900.

Amidst these market tensions, earnings reports from tech giants and major retailers scheduled for the week will further influence investor sentiment.