Dell Stock Double Downgraded as Morgan Stanley Turns Bearish on Hardware

Dell Technologies' stock (NYSE:DELL) experienced a significant shift in market sentiment following a double downgrade by Morgan Stanley, signalling concerns over the company's financial prospects amid rising memory costs and softening demand for non-AI hardware.

Dell's stock price faced downward pressure early this morning, down 2.7% in the pre-market session. Morgan Stanley lowered its rating on Dell from Overweight to Underweight, simultaneously reducing the price target from $144 to $110, as the firm become more more pessimistic on Dell's earnings potential heading into 2026.

The downgrade hinges on two primary factors: the escalating costs associated with the ongoing “memory supercycle” and a discernible decline in demand for traditional hardware products, excluding the burgeoning AI server segment.

Specifically, spot prices for NAND and DRAM have surged dramatically, increasing between 50% and 300% in the last six months. This inflationary pressure on input costs is expected to compress gross margins for hardware manufacturers like Dell.

Morgan Stanley projects a median 60-basis-point decline in global original equipment manufacturer (OEM) margins in 2026, a stark contrast to Wall Street's consensus, which anticipates a slight expansion. This divergence in expectations underscores the severity of the challenges Dell is projected to face. The firm also downgraded a number of global hardware names including HPE ($25 from $28), and HPQ ($24 from $26); citing that lower gross margins will lead to negative earnings revisions and multiple compression.

Price Targets

Interestingly, Morgan Stanley had previously expressed bullish sentiment towards Dell, citing strong momentum in the company's AI server business. As recently as August, the firm raised Dell's price target to $144, projecting approximately $20 billion in AI server revenue for fiscal year 2026, a 56% increase from prior forecasts. 

This highlights that analysts, like individual traders and investors, can shift their view as markets change, and it is important to take into account other factors when evaluating any stock.