Morgan Stanley Research Report Insights: Traditional Server Revenue Up 87%, Storage Still in Early Cycle
Morgan Stanley's IT Hardware report on September 21, 2026, highlights strong enterprise hardware spending in Q2. Traditional server revenue grew 87% year-over-year, storage grew 34%, and PC revenue grew 14%, marking multi-year highs outside of pandemic periods. However, the market has largely priced in this strength, with valuation multiples contracting post-earnings for most stocks. The key question is the sustainability of this cycle.
The core thesis is that storage remains in the early stages of an upcycle, servers are in a later stage, and the PC cycle is deteriorating rapidly. Morgan Stanley's top picks are P and SNX, followed by HPE. It maintains a Neutral rating on Dell due to full valuation and a Underweight on HPQ, which faces dual pressure from weak PC demand and margin compression.
Storage growth is accelerating, with P gaining significant share in the external OEM market. Server margins are at unprecedented highs for Dell and HPE, driven by supply constraints, richer configurations, and strong pricing power. While Dell's execution is seen as best-in-class, its current valuation premium limits upside. For HPQ, significant downside is anticipated due to margin pressures and weak PC unit trends.
Near-term catalysts include Dell's COO meeting, P's Analyst Day, SNX's earnings, and HPE's networking event. Key data to watch includes IDC's preliminary Q3 PC figures, Taiwanese ODM sales, and supply chain pricing for DRAM/NAND. The report concludes by questioning whether valuation compression for hardware stocks will reverse if demand continues to outstrip supply into 2027, or if the market will continue to price in a cyclical peak early.
marsbit09/22 06:15