Data center darlings Dell and Hewlett Packard Enterprise just got blindsided by Wall Street's reality check. Morgan Stanley torched seven hardware companies Monday, warning that skyrocketing memory chip costs could crush margins for the next 18 months. Dell plunged 8% while HPE dropped 7% as investors scrambled to price in what analysts are calling an "unprecedented pricing supercycle."
The carnage started early Monday when Morgan Stanley analysts dropped a bombshell research note that sent shockwaves through the hardware ecosystem. Dell got the harshest treatment with a rare double-downgrade from overweight straight to underweight, while HPE was cut from overweight to equal weight.
The selling spread like wildfire across the sector. HP Inc, Asustek, and Pegatron all got slashed from equal weight to underweight, while Gigabyte and Lenovo were lowered from overweight to equal weight. Every company in the crosshairs saw shares dive as much as 6%.
What's driving this sudden pessimism? Memory chips - the invisible backbone of every AI server and data center rack - are experiencing what Morgan Stanley calls an "unprecedented pricing supercycle." Samsung has reportedly jacked up memory chip prices by 60% since September alone, according to Reuters. That's putting enormous pressure on companies like Dell that build the servers powering the AI revolution.
"This as an emerging, and potentially significant, risk to CY26 earnings estimates for our Global Hardware OEM/ODM universe, where memory accounts for 10-70% of a products' bill of materials," the Morgan Stanley team warned in their note.
The timing couldn't be worse for hardware makers. Just as hyperscalers like Microsoft and Google are accelerating data center buildouts to support AI workloads, the cost of critical components is exploding. Memory fulfillment rates could plummet to just 40% over the next two quarters as demand vastly outstrips supply.
Dell finds itself in the crosshairs because it's heavily exposed to both ends of the squeeze. As one of Nvidia's biggest customers, Dell builds servers packed with AI chips and then sells them to cloud providers like CoreWeave. But rising memory costs are eating into margins faster than Dell can pass them along to customers.
