Investing.com -- Morgan Stanley cut its industry view on IT hardware to Cautious, warning that weakening enterprise demand and rising component costs are setting up a tougher backdrop for 2026 despite longer-term AI tailwinds.
Logitech was downgraded to Underweight. It has high correlation with notebook and gaming PC shipments. Logitech stock typically trades at lower valuation multiples during revenue downturns.
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NetApp was also cut to Underweight given rising NAND prices. MS analysts say around 30% of customers plan to reduce storage spending, which it said increases downside risk to both revenue and margins.
Valuation for NetApp is closely linked to margins, amplifying that risk.
Morgan Stanley said IT hardware stocks are trading at about 20 times earnings, close to historical highs relative to the broader market, despite what it views as near-peak earnings.
While it remains positive on AI as a long-term driver of technology spending, it said near-term cyclical pressures argue for a more defensive stance, with cloud and component vendors likely to benefit more than companies focused on on-premise hardware.
MS said results from its fourth-quarter 2025 CIO survey show hardware budget growth of just 1% for 2026, the lowest level in 15 years excluding the COVID period.
It added that its value-added reseller survey suggests 30% to 60% of customers are likely to cut PC, server and storage spending in response to higher input costs, pointing to more elastic demand than previously assumed.
This combination of higher costs and weaker demand increases the risk of earnings estimate cuts next year.
It noted that in past CIO downcycles, hardware earnings estimates were reduced by about 7% on average, while the group underperformed the broader market by roughly 15 percentage points.
MS analysts cut CDW to Equal-weight, citing its heavy exposure to U.S. enterprise hardware spending, with more than 40% of revenue tied to PCs, servers and storage. Morgan Stanley said 2026 growth is likely to be slower than previously modeled, limiting scope for multiple expansion.
