Analyst turns more bullish on hardware stocks as 'chipflation' accelerates demand

Investing.com -- Morgan Stanley has turned more constructive on IT hardware, upgrading its industry view as it argued that memory "chipflation" is accelerating infrastructure demand rather than delaying it.

Analyst Erik Woodring told clients in a note on Friday that the firm raised its U.S. IT hardware industry view to In-Line from Cautious, upgrading Hewlett Packard Enterprise (NYSE: HPE) and Pure Storage (NYSE: P) to Overweight and NetApp to Equal-weight (NASDAQ: NTAP), while downgrading Teradata (NYSE: TDC).

He acknowledged Morgan Stanley "had been on the wrong side of the enterprise hardware trade," having previously believed that record-high component inflation would quickly stymie a recovery.

Two factors drove the pivot. First, Woodring said enterprises increasingly view memory chipflation as "a multi-year structural headwind," and rather than deferring purchases until pricing cools, are accelerating buys of PCs, servers and storage to lock in favorable prices, a dynamic he dubbed "Fear of Missing Procurement."

Second, the firm's proprietary AlphaWise survey showed pull-forward and AI-related capacity expansion driving server and storage growth "to all-time survey highs in 2027."

Morgan Stanley reoriented its preferences toward storage over servers over PCs, and raised estimates across its OEM universe, sitting 9% to 12% above consensus on 2026 and 2027 EPS.

Still, the firm stressed the tailwinds are "primarily cyclical" and that it remains tactical. It noted hardware stocks are up over 100% since the start of 2025 and trade at historically expensive levels, warning the cycle could roll over beginning in 2027.

Woodring added that peaking estimate revisions would be the firm's "call to get more cautious again."

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