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Key takeaways
- Morgan Stanley downgraded computer manufacturers due to the impact of higher memory chip prices.
- Analysts said there is a “super cycle” for NAND and DRAM semiconductor prices, which is negatively impacting device makers’ profits.
- Dell shares were the S&P 500’s top losers in Monday afternoon trading.
The artificial intelligence boom that has driven up memory chip prices is hurting computer makers, according to a report from Morgan Stanley, which downgraded some of the biggest names in the sector.
Dell Technologies (DELL) shares fell nearly 10% in afternoon trading Monday, dragging down shares of the S&P 500. Hewlett Packard Enterprise (HPE) shares were down 8% recently, while HP (HPQ) shares were down about 7%.
Why is this news important?
Memory chip makers like Micron are benefiting from rising AI-driven demand, but Morgan Stanley analysts warn that a spike in memory prices is putting pressure on PC makers like Dell, HP and Hewlett-Packard Enterprise. Although hardware valuations remain near record levels, rising component costs could put pressure on profit margins.
The “pricing supercycle” for NAND flash memory and DRAM semiconductors “poses an increasing downside risk to device OEM earnings through 2026,” Morgan Stanley analysts wrote in a note to clients.
They added that with original equipment manufacturer (OEM) valuations already near all-time highs, “we believe it is time to de-risk exposure” to global hardware OEMs and OEMs “as memory represents a significant input cost.”
Morgan Stanley lowered its rating on Dell stock from “overweight” to “underweight” by two steps. HP has downgraded from “equal weight” to “underweight”, and Hewlett Packard Enterprise from “overweight” to “equal weight”. Analysts cut ratings on several other companies as well, but maintained their bullish outlooks for some IT hardware companies, including Seagate Technology (STX) and Western Digital (WDC).
Just last week, Morgan Stanley cited a spike in memory chip prices in making Micron Technology (MU) a “top pick,” which followed similar comments from Mizuho Securities.
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