Dell Stock Slides as Morgan Stanley Slashes Rating on Memory Cost Concerns

TLDR

Table of Contents

Morgan Stanley downgraded Dell Technologies from ‘Overweight’ to ‘Underweight’ with a new price target of $110, down from $144
Dell stock dropped more than 5% in premarket trading following the downgrade announcement
Rising memory costs in DRAM and NAND are cited as major concerns affecting Dell’s profit margins
Morgan Stanley reduced its fiscal year 2027 earnings per share forecast by approximately 12%
The stock had previously outperformed by about 200 points since March 2023 before this downgrade

Dell Technologies took a hit in premarket trading on Monday, falling more than 5% after Morgan Stanley delivered a harsh downgrade. The brokerage firm cut its rating from ‘Overweight’ to ‘Underweight’ and slashed the price target to $110 from $144.

Dell Technologies Inc., DELL

Analyst Erik Woodring led the downgrade, pointing to rising component costs as the primary concern. Memory costs are climbing fast, particularly for DRAM and NAND chips.

Dell’s business model makes it vulnerable to these price increases. The company relies heavily on memory-intensive hardware for its products.

Memory Costs Taking a Toll

Woodring identified Dell as one of the hardest-hit stocks in the original equipment manufacturer space when it comes to memory cost inflation. Over the next 12 to 18 months, these rising costs could squeeze profit margins.

The timing is rough for Dell. The stock had been on a strong run, re-rating approximately seven times since hitting bottom in March 2023.

That rally added about 200 points of outperformance. Now Morgan Stanley sees that momentum reversing.

The firm didn’t hold back in its financial projections. It cut Dell’s fiscal year 2027 gross margin estimates by 150 to 220 basis points.

Operating margin forecasts took a similar hit. The earnings per share outlook dropped by roughly 12%.

AI Server Mix Adds to Concerns

Beyond memory costs, Morgan Stanley flagged issues with Dell’s AI server mix. The combination of component cost inflation and product mix concerns creates a double headwind.

InvestingPro data shows Dell’s gross profit margin sits at just 21.26%. That’s already on the thin side for the industry.

With memory prices climbing, those margins face additional pressure. The stock had already declined 6.26% over the past week before Monday’s premarket drop.

Dell stock closed at higher levels before the downgrade hit. The new $110 price target represents a drop of roughly 24% from the previous $144 target.

The report comes as Dell continues expanding its AI Data Platform and storage capabilities. Recent partnerships with NVIDIA, Elastic, and Starburst aim to strengthen its position in the AI market.

Evercore ISI recently raised its price target for Dell to $180, maintaining an Outperform rating. That move followed a major $5.8 billion contract announcement with cloud service provider IREN.

Raymond James also lifted its target to $161 from $152. Those bullish calls now contrast sharply with Morgan Stanley’s bearish stance.

Morgan Stanley’s downgrade focuses on near-term margin pressure from component costs. The firm expects these headwinds to persist over the next 12 to 18 months as memory prices remain elevated.

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