TLDR
- Dell Technologies shares plunged over 5% in premarket trading after Morgan Stanley’s downgrade to ‘Underweight’
- Price target slashed from $144 to $110 as memory component costs surge
- DRAM and NAND price increases threaten to squeeze Dell’s profit margins over the next 12-18 months
- Fiscal year 2027 earnings per share forecast cut by approximately 12%
- Dell identified as most exposed to rising memory costs among equipment manufacturers
Dell Technologies shares tumbled more than 5% in premarket trading Monday after Morgan Stanley delivered a stinging downgrade. The investment bank dropped its rating from ‘Overweight’ to ‘Underweight.’
The price target took an even bigger hit. Morgan Stanley cut it to $110 from $144, representing a 24% reduction.
Analyst Erik Woodring authored the downgrade note. He cited rising memory costs as the main driver behind the negative outlook.
DRAM and NAND chip prices are climbing fast. Dell’s heavy reliance on these components makes it vulnerable to margin compression.
Memory Cost Pressures Mount
Woodring singled out Dell as one of the most exposed stocks to memory cost inflation among original equipment manufacturers. The company’s product mix leans heavily on memory-intensive hardware.
Over the next 12 to 18 months, these rising costs will eat into profitability. Morgan Stanley doesn’t see relief coming anytime soon.
The timing stings for Dell investors. The stock had been on a tear since March 2023, re-rating approximately seven times.
That rally delivered about 200 points of outperformance. Now Morgan Stanley sees that momentum reversing course.
The firm backed up its bearish stance with revised financial projections. It slashed fiscal year 2027 gross margin estimates by 150 to 220 basis points.
Operating margins face similar pressure. The earnings per share forecast dropped roughly 12%.
AI Server Mix Complicates Picture
Morgan Stanley flagged additional concerns beyond memory costs. Dell’s AI server mix presents challenges as component cost inflation accelerates.
The combination creates a double headwind for the stock. InvestingPro data shows Dell’s gross profit margin at 21.26%, already thin for the sector.
With memory prices rising, maintaining even those margins becomes harder. The stock had declined 6.26% over the past week before Monday’s premarket drop.
Dell continues pushing forward with its AI Data Platform expansion. Recent partnerships with NVIDIA, Elastic, and Starburst aim to strengthen its market position.
Other analysts remain more optimistic. Evercore ISI recently raised its price target to $180, keeping an Outperform rating after a $5.8 billion contract win with IREN.
Raymond James also lifted its target to $161 from $152. Those bullish views now clash with Morgan Stanley’s pessimistic outlook.
The downgrade focuses squarely on near-term margin pressure. Memory cost headwinds are expected to persist through the next year and beyond as component prices stay elevated.
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