US IT hardware stocks fall as Morgan Stanley turns cautious on sector

U.S. IT hardware stocks fell on Tuesday after Morgan Stanley downgraded its view on the industry, warning that companies could drastically reduce their spending budgets as enterprise demand slows and component costs rise.

U.S.-listed shares of Logitech LOGN.S, LOGI.O and NetApp NTAP.O dropped 6.2% and about 3.8% respectively in premarket trading after the Wall Street brokerage slashed its rating on both companies to "underweight" from "equal-weight".

Morgan Stanley reduced its rating on CDW Corporation CDW.O to "equal-weight" from "overweight", sending its shares down 2.1%.

Shares of Dell Technologies DELL.N, HP Inc HPQ.N and Hewlett Packard Enterprise HPE.N also fell between 2%-3%.

"A 'perfect storm' of slowing demand, input cost inflation and rich valuations is emerging, leading us to get more defensive into 2026," Morgan Stanley analysts wrote.

The brokerage cut its North American IT Hardware industry view to "cautious" from "in-line," and said corporate technology leaders have started to dial back hardware spending plans - which is a 'new cautionary sign' - adding to existing concerns including input cost inflation and supply shortages.

Analysts now expect just 1% year-on-year growth in hardware budgets in 2026, the weakest non-COVID reading in about 15 years, based on its latest survey, prompting the sector downgrade.

A survey by the brokerage also showed Value-Add Resellers are expecting 30-60% of customers to reduce their personal computers, server, and storage spending plans in response to price hikes caused by component cost inflation.

"With higher costs and elastic demand comes greater risk of downside earnings estimate revisions in 2026," Morgan Stanley added.

-Rashika Singh/Reuters