Morgan Stanley said enterprise hardware spending strengthened broadly in the second quarter, with traditional server revenue up 87% year over year, storage up 34%, and PCs up 14%, according to the bank’s IT hardware report dated Sept. 21, 2026.
The firm said those growth rates were the strongest seen in more than a decade outside the pandemic period. Still, it argued that the market has already started looking past the near-term strength. Among eight enterprise hardware OEM, VAR, and distribution stocks it tracks, six traded at lower valuation multiples after earnings even though consensus next-fiscal-year EPS moved up by an average of 12%, while average P/E multiples compressed by about one turn.
Storage is still early, servers are later, and PCs have weakened
Morgan Stanley’s central view is that storage remains in the early stage of an upward cycle, the server cycle is further along, and most of the PC opportunity has already passed. The bank said PC trends have deteriorated quickly.
Its preferred names in enterprise hardware are P and SNX, followed by HPE. It kept Dell at a neutral stance and maintained an underweight view on HPQ. The report said Dell has executed the best, but valuation already reflects that strength, while HPQ is facing pressure from both PC demand and profitability.
Second-quarter spending strength was broad-based
The report said second-quarter enterprise hardware spending accelerated across categories. Traditional server revenue rose 87% year over year, storage revenue increased 34% after growing 23% in the first quarter, and PC revenue climbed 14%.
Morgan Stanley’s AlphaWise survey suggested the current strength is mainly cyclical, driven by normal refresh demand and pull-forward purchases by large enterprises. Most AI workloads remain in the cloud. On-prem AI deployments are expanding, but they are still a minority, and the share of on-prem AI workloads is expected to decline by 3 percentage points over the next year.
The bank said Dell and HPE could still benefit from continued on-prem AI buildouts, which it described as an incremental factor behind the post-earnings outperformance in both stocks.
Storage is viewed as the longest runway
Among storage, servers, and PCs, Morgan Stanley said storage has the longest runway. It said growth in storage is accelerating and remains early in the cycle, while the server cycle is later and the PC window has largely closed.
For P, the bank said the company posted the largest gain in EB shipment share and the second-largest gain in revenue share in second-quarter external OEM storage data, behind only Dell. Morgan Stanley said P’s pricing is more moderate than NTAP’s, its products are more efficient, and enterprises are increasingly assigning new storage projects to P.
The bank reiterated its Overweight rating on P and set a $119 price target. It said P trades at about 29x earnings, roughly 14% below its three-year average, while enterprise OEM peers as a group trade more than two standard deviations above their historical average valuations.
Morgan Stanley said the market is underestimating P’s earnings revision potential, especially given record growth and new hyperscaler orders. It identified Sept. 23 analyst day as a key catalyst. Long-term operating margin guidance is the main metric to watch: low-20% would disappoint, mid-20% would be in line, and mid-to-high-20% would be a positive surprise.
Traditional server margin stacking has reached unusual levels
Morgan Stanley said margin stacking in traditional servers has reached unprecedented levels, and both Dell and HPE are seeing the effect.
Using Dell as an example, the bank said low-margin AI servers rose to 52% of ISG revenue from 49% a year earlier, yet ISG gross margin still expanded 200 basis points year over year to 23.6%. Morgan Stanley estimated that Dell’s traditional server gross margin exceeded 30% for the first time, up about 9 percentage points from a year earlier, even as NAND and DRAM prices rose 340% to 550% year over year. Those two components have historically accounted for about 40% of traditional server BOM.
The report said Dell and HPE have been actively repricing. Tight supply, richer configurations, and inelastic demand have pushed the gap between price and cost far above historical norms.
Morgan Stanley estimated that if Dell’s F1Q27 server units, ASP, and revenue stay unchanged but traditional server gross margin normalizes to the low-20% range, F1H27 EPS would be 13% lower, or about $1.52. It also estimated that roughly $3.75 of Dell’s FY27 EPS comes from traditional server margin stacking.
As long as memory prices keep rising and supply remains constrained, the bank said, that margin benefit is unlikely to disappear quickly. Morgan Stanley raised its FY27 and FY28 traditional server gross margin assumptions for Dell by 50 to 80 basis points and lifted its price target to $511 from $499.
Dell’s execution stands out, but valuation keeps Morgan Stanley neutral
Morgan Stanley described Dell’s execution as exceptionally strong. In the second quarter, Dell posted 58% revenue growth and 189% net profit growth, ahead of Lenovo, HPE, P, NTAP, and HPQ.
Dell shares rose 34% in 2.5 weeks, versus an average 9% gain for other hardware OEMs. The stock’s premium to its own historical valuation is also above peers, the bank said. Morgan Stanley called Dell an all-weather winner within the OEM group, citing cloud AI, on-prem AI, geopolitics, and supply chain positioning.
Even so, it kept a neutral rating and a $511 target price on the stock. The report said strong execution is already reflected in the share price, the valuation premium is clear, and the durability of earnings later in the cycle remains uncertain. Morgan Stanley said pull-forward demand in traditional servers and margin stacking will eventually normalize, leaving AI growth, market share gains, storage outperformance, and operating leverage to support earnings.
The bank’s conclusion was that Dell’s recent execution is not in dispute, but at current valuation levels the positive asymmetry in risk-reward is limited.
P and SNX are the bank’s top picks
Morgan Stanley said its favorite enterprise hardware names are P and SNX, with HPE next.
On P, the bank said the company leads the all-flash array market, continues to gain share, and benefits from all-flash growth outpacing the broader enterprise storage market. It added that P’s hyperscaler business offers long-term upside for both revenue and gross margin, and that the market has not fully priced that in. P’s valuation is below its historical average, while enterprise OEM peers trade more than two standard deviations above theirs.
On SNX, Morgan Stanley said the company benefits from both enterprise infrastructure distribution and hyperscaler capital spending. It expects SNX distribution gross billings to grow at an 11% compound annual rate through FY28, ahead of peers. It also expects Hyve contract manufacturing gross billings to grow at a 64% annual rate. As new hyperscaler programs ramp, Hyve is expected to account for about 50% of operating profit, helping drive EPS growth of more than 30% annually.
SNX currently trades at about 10x FY27 EPS and 8x FY28 EPS, the bank said. Morgan Stanley argued that the market is underestimating share gains, earnings growth, and the option value of Hyve, and it set a $334 price target.
HPQ faces pressure from both demand and margins
Morgan Stanley took a much more cautious stance on HPQ. It said the company is dealing with a double hit from weaker PC demand and margin pressure.
In the second quarter, HPQ’s personal systems operating margin was 4.6%, or about 4.3% excluding tariff refunds, down roughly 110 basis points year over year. Dell’s CSG operating margin was about 330 basis points higher than HPQ’s and expanded about 120 basis points year over year to 7.6%. Morgan Stanley said the execution gap among PC OEMs is widening.
HPQ management has said the fourth quarter should mark the low point for personal systems margins and that FY27 should recover. Morgan Stanley said that recovery still faces pressure from component inflation and weak unit demand.
On valuation, the bank said HPQ trades at about 11x Street FY27 EPS and 12.5x MSE EPS, levels it finds increasingly hard to justify. It also noted that HPQ was the only OEM in its coverage universe whose P/E multiple expanded before earnings, despite having the smallest earnings revision.
Historically, HPQ has traded at about 7x earnings during periods of year-over-year declines in revenue and profit, the report said. Morgan Stanley maintained its Underweight rating and a $19 price target, which it said implies more than 40% downside from current levels. The bank expects HPQ FY27 revenue to fall 2% and EPS to decline 16%, both below consensus.
Key catalysts over the next few weeks
Morgan Stanley listed several near-term events it sees as important.
- Sept. 22: Dell COO meeting, with focus on supply allocation, traditional server pricing, AI server economics, and storage attach.
- Sept. 23: P analyst day, with focus on hyperscaler economics and long-term operating margin guidance.
- Sept. 24: SNX earnings, with focus on distribution share gains and Hyve details.
- Sept. 30: HPE networking analyst day, with focus on whether Aruba and Juniper integration can translate into sustained growth, and on the size of the AMD Helios opportunity.
In early October, preliminary IDC third-quarter PC data should offer a first read on how severe the PC deterioration has become. Monthly Taiwan ODM revenue, due before Oct. 10, should provide more visibility into AI server, traditional server, and notebook shipments.
The bank also said supply-chain data, especially DRAM and NAND supply and pricing, will be critical in judging OEM pricing power and the durability of server margin stacking. Monthly VAR checks and CIO surveys should help show whether server demand intentions have peaked and whether storage and networking are accelerating.
The report closed with an open market question: if storage and server demand continue to exceed supply in 2027, will the valuation compression in enterprise hardware stocks reverse, or will the market keep pricing in a cycle peak ahead of time?
Source note and risk disclosure
The original Chinese article said it was a整理与解读 of a third-party brokerage report from Morgan Stanley dated Sept. 21, 2026, combined with public market information. It also said the ratings, price targets, earnings forecasts, and related judgments cited in the piece were the views of Morgan Stanley analysts and represented only the position of that institution, not the view of the publisher, and did not constitute investment advice.
The article also carried a risk reminder stating that markets involve risk, decisions should be made independently, and the piece should not be used as a basis for buying or selling any security.