Morgan Stanley has adopted a more constructive stance on U.S. IT hardware, arguing that rising memory-chip costs are encouraging companies to accelerate infrastructure purchases rather than postpone spending. The firm upgraded its industry view to In-Line from Cautious and revised several individual stock ratings as demand for servers and storage strengthens.
Morgan Stanley upgrades IT hardware outlook
Analyst Erik Woodring said Morgan Stanley had raised its view of the U.S. IT hardware industry after reassessing the impact of elevated component prices on enterprise technology spending.
The firm upgraded Hewlett Packard Enterprise and Pure Storage to Overweight, while NetApp was lifted to Equal-weight. Teradata, meanwhile, was downgraded.
The changes reflect a broader shift in Morgan Stanley’s expectations for enterprise hardware demand as businesses respond to persistently higher memory prices and expanding artificial intelligence infrastructure requirements.
Woodring acknowledged that Morgan Stanley “had been on the wrong side of the enterprise hardware trade,” after previously expecting record component inflation to quickly undermine the sector’s recovery.
‘Chipflation’ encourages companies to buy sooner
One of the main reasons behind the change in outlook is the way businesses are responding to rising memory-chip prices.
Rather than treating higher costs as a temporary issue and delaying purchases until prices decline, enterprises increasingly regard memory chipflation as “a multi-year structural headwind,” according to Woodring.
That shift in expectations is encouraging companies to bring forward spending on PCs, servers and storage systems in an effort to secure equipment before prices potentially rise further.
Woodring described the trend as “Fear of Missing Procurement.”
The behaviour represents an important reversal of Morgan Stanley’s previous thesis that component inflation would weaken demand by making hardware purchases more expensive.
AI pushes server and storage demand higher
Artificial intelligence investment provides another major reason for Morgan Stanley’s improved industry outlook.
The firm’s proprietary AlphaWise survey indicates that a combination of purchases being brought forward and AI-related capacity expansion could push server and storage growth “to all-time survey highs in 2027.”
Enterprises and technology providers continue to increase infrastructure capacity to accommodate more demanding AI workloads, supporting demand for computing and data-storage equipment.
That trend has led Morgan Stanley to favour storage most strongly within the hardware industry, followed by servers and then PCs.
Earnings estimates move above Wall Street consensus
Morgan Stanley also increased its financial forecasts across its original equipment manufacturer universe to reflect stronger expected demand.
The firm’s earnings-per-share estimates for 2026 and 2027 are now between 9% and 12% above consensus forecasts.
The more optimistic projections reflect the combined impact of accelerated procurement, AI-related infrastructure expansion and stronger server and storage demand.
The upgrades to Hewlett Packard Enterprise and Pure Storage are consistent with the firm’s preference for companies positioned to benefit from those trends.
Hardware rally leaves valuations elevated
Despite becoming more positive on the industry, Morgan Stanley emphasised that its stance remains tactical rather than structurally bullish.
The firm described the current tailwinds as “primarily cyclical,” suggesting that the favourable demand environment may eventually lose momentum.
Hardware stocks have already gained more than 100% since the beginning of 2025 and are trading at historically expensive valuations.
Those gains leave less room for disappointment if earnings growth slows or enterprise purchasing patterns begin to normalise.
Morgan Stanley sees risk of cycle turning in 2027
Morgan Stanley warned that the hardware cycle could begin to roll over during 2027, particularly once the current wave of accelerated purchasing starts to fade.
Bringing purchases forward can strengthen near-term demand but potentially leaves fewer orders available in subsequent periods.
That dynamic means the same “Fear of Missing Procurement” trend currently supporting hardware companies could eventually create more difficult comparisons as the cycle matures.
Woodring said peaking earnings estimate revisions would represent the firm’s “call to get more cautious again.”
For now, however, Morgan Stanley sees enough strength in enterprise procurement and AI infrastructure investment to justify a more constructive view of U.S. IT hardware, particularly storage and server companies.