Marina Lyubimova
⬤ Dell Technologies took a major hit when Morgan Stanley issued a rare double downgrade, dropping its rating all the way from Overweight to Underweight while cutting the price target to $110 from $144. The firm's analysts pointed to shrinking margins as AI servers make up a bigger chunk of Dell's business, compounded by component costs that keep climbing. This marks a sharp reversal from earlier optimism about Dell cashing in on the GenAI boom.
⬤ Morgan Stanley's shift comes after Dell's stock has had an impressive run. Since hitting bottom in March 2023, the shares have re-rated about seven times and beaten the market by nearly 200 percentage points. The bank initially thought Wall Street was sleeping on Dell's GenAI potential and its ability to return more cash to shareholders. But now, surging memory prices have become a real problem, and Dell stands out as one of the most vulnerable companies in the hardware space to these cost pressures.
⬤ The firm made some hefty cuts to Dell's profit outlook. Gross and operating margin estimates for fiscal 2027 dropped by 150 to 220 basis points, while the earnings per share forecast fell by roughly 12%. Even though demand for AI servers stays strong, the components needed to build them are getting so expensive that they're eating away at the profit margins everyone was counting on. The lower price target reflects these tighter margins and the risk that Dell's valuation could compress further as component inflation keeps grinding higher.
⬤ This downgrade matters because it shows how quickly the narrative around AI infrastructure can flip. While growth opportunities tied to AI remain real, the cost side of the equation is becoming harder to ignore. As memory and component prices climb across the industry, Dell's revised outlook is a reminder that hardware suppliers face a tough balancing act between capturing AI demand and protecting their bottom lines.
Marina Lyubimova
