Quick Read
- Morgan Stanley downgraded Dell Technologies stock from ‘overweight’ to ‘underweight’, slashing its price target from $144 to $110.
- Dell’s stock dropped over 7% to $124.44, its lowest since September, after the analyst note.
- Surging Nand and DRAM memory chip prices—up 50–300% in six months—are squeezing profit margins for hardware makers.
- Options trading volume for Dell doubled, with puts gaining traction as investors brace for further declines.
- Other computer makers, including HPE and HP, were also downgraded and saw stock price drops.
Morgan Stanley Sounds the Alarm: Dell Stock Faces Double Downgrade
It was a bruising Monday for Dell Technologies, as Morgan Stanley delivered a double downgrade that sent shockwaves through the hardware sector. Dell’s stock tumbled more than 7%, dropping to $124.44—its lowest level since early September and well off the one-year high of $167.94 reached just two weeks prior. The downgrade, from ‘overweight’ to ‘underweight,’ was paired with a slashed price target of $110 (down from $144), underscoring deepening concerns about the company’s future profitability.
Morgan Stanley’s rationale was blunt: soaring prices for memory chips—specifically Nand and DRAM—are squeezing margins for computer makers. The investment bank’s analyst team, led by Erik Woodring, highlighted a ‘supercycle’ in memory pricing, driven by accelerating demand from hyperscalers, a shift toward high bandwidth memory, and recent underinvestment in Nand. In just six months, spot prices for these chips have surged 50–300%. Looking ahead, contract prices are projected to rise by double digits each quarter through 2026, while memory fulfillment rates could plummet to as low as 40% in the next two quarters.
Memory isn’t just another line item; it accounts for a staggering 10% to 70% of the bill of materials for everything from servers and storage arrays to PCs and smartphones. For Dell, and its peers, that means the cost of doing business is rising at a pace that threatens to outstrip revenue growth—especially with secular drivers like generative AI and data center expansion still fueling demand.
Sector-Wide Fallout: Hardware Makers Under Pressure
It wasn’t just Dell feeling the heat. Morgan Stanley also downgraded Hewlett Packard Enterprise (HPE), HP Inc. (HPQ), and several Asia-based computer makers including Asustek, Giga-Byte Technology, Lenovo, and Pegatron. The selloff was swift and broad: HPE and Dell stocks dropped more than 6%, HP fell over 3%, and options markets saw a spike in activity. By midday, more than 16,000 call options and 13,000 put options had traded hands for Dell—roughly double the typical volume—with the November 120 put contract drawing the most interest. The nervous energy was palpable, reflecting heightened uncertainty about near-term performance.
Meanwhile, memory-chip makers like Micron Technology and Sandisk were trading at record highs, a stark contrast to the woes facing hardware manufacturers. For these suppliers, the supercycle has been a windfall. For their customers, it’s a headache that won’t resolve soon.
Charting Dell’s Slide: Technical and Sentiment Signals
Dell’s stock performance has been a study in volatility. After peaking on November 3, shares have logged losses in 12 of the last 14 trading sessions. Technical indicators are flashing warning signs: the 160-day moving average is hovering near today’s lows, possibly helping stem the bleeding, while the 14-day relative strength index (RSI) has plunged to 14—deep in oversold territory. Historically, such readings can spark bargain hunting, but this time, the fundamental headwinds appear more formidable.
Options traders, usually a barometer of sentiment, are betting heavily on further declines. Over the past 10 weeks, call options have been notably more popular than puts, with a 50-day call/put volume ratio of 2.52 at the major exchanges. Yet the latest activity suggests a pivot, with puts gaining traction as investors brace for continued turbulence.
Profit Margin Anxiety: The Cost of Chasing AI Growth
The broader context is crucial. As Investors.com and Schaeffers Research report, the technology sector is spending aggressively on AI infrastructure. Industry giants are pouring billions into data centers and next-generation hardware, fueling demand for memory and driving prices higher. But that investment comes at a cost. For computer makers like Dell, the pressure to innovate collides with the reality of shrinking margins—a dilemma that’s playing out across the market.
Morgan Stanley’s downgrade was notable not just for its severity but for its timing. With memory prices expected to climb quarter after quarter, and fulfillment rates falling, the pain may persist well into 2026. The firm’s move has prompted a sector-wide reckoning, forcing investors to reevaluate their exposure to hardware names and reconsider the sustainability of recent gains.
Investor Takeaways: Oversold or Overwhelmed?
For Dell shareholders, the question is whether the current selloff represents a buying opportunity or a warning of deeper trouble. The oversold RSI and heavy options trading could signal a near-term bounce, but the fundamentals—rising costs, margin pressure, and uncertain fulfillment—point to ongoing risk. Morgan Stanley’s price target cut reflects this cautious outlook, with little relief in sight until memory markets stabilize.
In the bigger picture, the episode serves as a reminder of how interconnected the tech sector has become. AI-driven expansion, while promising, has introduced new cost structures and supply chain dynamics that can upend even the most established players. For now, Dell is at the center of that storm, and investors are watching closely for signs of stabilization—or further decline.
Morgan Stanley’s double downgrade of Dell stock is more than a routine analyst move—it’s a stark reflection of how rapidly shifting component costs and relentless AI investment can reshape sector fortunes. The selloff signals that investors are weighing not just technical signals but fundamental risks, suggesting that volatility may linger until the memory chip supercycle abates and margin pressures ease.