Morgan Stanley Double-Downgrades DELL as Rising Memory Costs Hit Margins

Core Viewpoint - Dell Technologies Inc. has been downgraded by Morgan Stanley from "overweight" to "underweight," with a new price target set at $110, down from $144, due to pressures from rising memory costs and AI server mix impacting margins and valuation [1][2]. Group 1: Rating Changes and Price Target - Morgan Stanley has double downgraded Dell to "underweight" from "overweight" and reduced its price target to $110 from $144 [1][2]. - The firm previously upgraded Dell to "overweight" in May 2023 and selected it as a top IT hardware pick in September 2023, citing underappreciation of Dell's Gen AI opportunities [2]. Group 2: Margin and Earnings Impact - Dell is experiencing significant margin pressure due to rising memory costs, with the firm reducing FY27 gross and operating margins by approximately 150–220 basis points and EPS by about 12% [3]. - The stock has been identified as one of the hardest hit in the OEM universe from rising memory costs, particularly due to its product mix [3]. Group 3: Market Conditions - Over the past six months, spot prices for NAND flash and dynamic random-access memory products have surged by as much as 50% and 300%, respectively, which will heavily impact Dell's cost structure [3]. - The firm believes that while Dell has potential as an investment, other AI stocks may offer better upside potential with less downside risk [4].