Morgan Stanley has sharply downgraded Dell's stock and advises selling. What happened?

Morgan Stanley has sharply downgraded its recommendation on shares of PC maker and AI server assembler Dell, CNBC reports. It dropped its "Overweight" rating, equivalent to a buy recommendation on these securities, and set an "Underweight" rating, equivalent to a sell recommendation. The investment bank thus skipped the neutral step, a rare move.

Analysts at Morgan Stanley also lowered their target price for Dell shares from $144 to $110. This implies a decline of about 18% from the closing level of trading on Friday, November 14.

Eric Woodring, the bank's senior research director, noted that Dell is one of the most vulnerable OEMs due to rising costs of components: DRAM RAM chips and NAND SSDs. The analyst estimates that this will put pressure on the company's margins over the next 12-18 months and could lead to a further deterioration in Dell's valuations.

"This is important because historically, companies facing declining margins perform worse than comparable growth players with stable or improving margins," Woodring noted. - Our analysis shows a strong negative correlation between DRAM/NAND price increases and Dell's gross margin, especially considering that memory accounts for 25 percent to 70 percent of the cost structure in all three of the company's key product segments.

Dell shares collapsed by 7.9% after a rating downgrade from Morgan Stanley. Since the beginning of the year, the company's value has added 16%.

Wall Street remains positive on Dell's prospects, with 21 of the 26 analysts' estimates tracking the securities recommending buying them, according to LSEG data cited by CNBC.

This article was AI-translated and verified by a human editor