Dell Stock Got Crushed After a Rare Double Downgrade. The Case for Buying.

J.P. Morgan expects a strong quarterly earnings print from Dell because demand for AI servers is strong. (Courtesy Dell Technologies)

Key Points

• Morgan Stanley downgrades Dell Technologies to Underweight, citing margin pressure from a 50% to 300% surge in memory prices.
• Dell shares fall after the downgrade, making it one of the worst performers in the S&P 500.
• J.P. Morgan maintains an Overweight rating on Dell, expecting strong third-quarter earnings driven by AI server demand.

Dell Technologies stock slumped following a double downgrade from analysts at Morgan Stanley , even though another bank counseled investors to buy the stock ahead of next week’s earnings report. JPMorgan, on the other hand, placed Dell on a Positive Catayst Watch.

Morgan Stanley slashed its rating for Dell stock to Underweight from Overweight and lowered its price target to $110 from $144 in a research note Sunday. A surge in the price of memory drives—a component in Dell products like servers and PCs—will weigh on Dell’s margins, it said.

Spot prices for NAND flash and dynamic random-access memory products have jumped by as much as 50% and 300%, respectively, in the past six months. Dell’s mix of products means it is among the hardware manufacturers most exposed to the higher prices, Morgan Stanley said.

Competitors HP and Hewlett Packard Enterprise may also take a hit. Like Dell, HP and HPE’s margins tend to shrink when memory-component costs increase, and investors should expect that trend to continue, the bank said.

Morgan Stanley lowered its rating for HP to Underweight from Equal-weight and its target price to $24 from $26. The bank also downgraded HPE to Equal-weight from Overweight and slashed its target price to $25 from $28.

Barron’s has reached out to Dell, HP, and HPE for comment.

Dell shares dropped 8.4% at $122.38 on Monday, while HP fell 6.8% to $22.87, and HPE fell 7% to $21.23. The trio were among the worst performers in the S&P 500 on Monday.

While Morgan Stanley got uber-bearish on Dell, analysts at J.P. Morgan apparently like its near-term prospects. The technology company reports fiscal third-quarter earnings on Nov. 25. J.P. Morgan expects a strong result driven by robust demand for artificial-intelligence servers.

Dell was a Barron’s stock pick last month, based on its under-the-radar transformation into an AI growth stock.

Dell is likely to issue a better-than-expected outlook for the fourth quarter and ease concerns about the sustainability of AI capital investment, the bank said. Any margin pressure from rising memory costs should come in fiscal 2027 rather than in 2026, J.P. Morgan argued, because Dell pre-bought many components when prices were declining.

“While concerns about capex sustainability are likely to remain a topic of debate for some time, we believe investors will gain confidence in supplier momentum, supported by significant upward revisions in AI server revenue,” the J.P. Morgan analysts wrote.

The firm reiterated an Overweight rating for Dell stock and boosted its price target to $170 from $165 on higher AI server revenue estimates. It also added Dell to its positive catalyst watch, which indicates near-term bullishness around a specific event, such as earnings.

HP, which also reports earnings on Nov. 25, will likely deliver solid results but a lackluster outlook for fiscal 2026, J.P. Morgan said. HPE reports earnings in early December and should beat consensus estimates. The firm reiterated a Neutral rating and a $30 price target for HP and an Overweight rating and $30 price target for HPE.

Write to Nate Wolf at nate.wolf@barrons.com