'Perfect storm': Morgan Stanley has worsened its view of the IT hardware market

Shares of U.S. IT equipment makers declined on Tuesday, January 20, including after Morgan Stanley worsened its assessment of the sector, recommending caution, Reuters writes.

The investment bank warned of slowing demand in the IT industry due to cuts in commercial spending on IT equipment amid economic uncertainty, Reuters points out. All this, as emphasized in Morgan Stanley, strengthens the already existing concerns in the market, associated with the rise in the cost of components and problems with the supply chain. As a result, the bank downgraded its assessment of the situation in the industry from neutral ("in line") to "cautious" ("cautious").

Amid the investment bank's downgrade of the situation in the sector, shares of Hewlett Packard and Dell Technologies were falling by 6% at the moment in trading on January 20, while HP Inc securities were down by 3%.

Quotes of American depositary shares of Logitech and NetApp sagged by 4.4% and 7.6%, respectively. The pressure on them, among other things, was the fact that Morgan Stanley on January 20, downgraded recommendations on both companies from "neutral" to "sell", adds Reuters. The target price on Logitech shares was lowered from $107 to $89 per paper. It assumes a decline in the company's stock price by almost 7% relative to the closing price on January 19. Also, the bank on January 20 lowered its target on NetApp from $117 to $89, which implies a 14.4% drop in the company's share price.

Massive sell-offs in the sector led to a 1.1% decline in the IT equipment index at the opening of trading on January 20. The decline in the sector comes amid a general decline in the U.S. stock market after U.S. President Donald Trump announced that he would impose additional 10 percent duties on goods from eight EU countries because of their stance on Greenland.

Analysts at Morgan Stanley (MS) have described the situation unfolding in the market for IT hardware manufacturers as a "perfect storm." It combines "slowing demand, resource cost inflation [due to rising component costs], and inflated valuations." As a result, MS analysts said they are forced to take a more defensive stance in their forecasts for the sector for 2026.

According to Morgan Stanley's latest survey, growth in enterprise customers' hardware procurement budgets will only grow at a 1% annualized rate in 2026 - the weakest rate, barring the COVID-19 period, in about 15 years, the bank said.

A separate investment bank survey of resellers found that between 30% and 60% of IT equipment manufacturers' customers may cut back on planned purchases of PCs, servers and storage systems if component inflation-related price increases persist.

With demand fueled by AI development supporting iron manufacturers, uncertainty surrounding the duties announced by US President Donald Trump over Greenland is weighing on the sector, Reuters notes.

Analysts at Citigroup indicated on Monday, January 19, that hardware companies and distributors face more uneven corporate demand, rising memory costs and weaker PC shipments in 2026, Reuters writes. "Against a backdrop of higher costs and elastic demand, there is an increased risk of downward revisions to [IT hardware companies'] earnings forecasts in 2026," Morgan Stanley added.

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