Peak valuation leaves IT hardware vulnerable to downgrades, Morgan Stanley warns

Morgan Stanley warned that IT-hardware stocks trade at peak valuations and face rising cyclical risks that could prompt negative earnings revisions in H2. The bank says the group (ex-Apple) now trades at ~26x NTM P/E — a 10-turn premium to the prior peak and an all-time high versus the S&P 500 — with earnings-revision breadth near 15-year highs. Morgan Stanley flagged a once-in-a-generation memory supercycle (memory prices +600% YoY), supply-chain shortages and a volatile macro backdrop as downside margin/EPS risks, and kept a cautious stance. It singled out Dell as the most tactically positive name, HPE and Xerox as neutral/constructive, and HP (HPQ) and NetApp as most at risk with Underweight ratings. The note implies potential downgrades and greater volatility for the IT hardware group, which could weigh on technology-heavy benchmarks such as the US Tech 100.