IT Hardware: Off-Cycle Earnings Preview – Recent Outperformance Underestimates Cyclical Risks in 2H

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IT Hardware: Off-Cycle Earnings Preview – Recent Outperformance Underestimates Cyclical Risks in 2H

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May 21, 2026 07:29 AM GMT

Morgan Stanley & Co. LLCMIT Hardware | North America Erik W Woodring

Equity Analyst

Off-Cycle Earnings Preview – Erik.Woodring@morganstanley.comMaya C Neuman +1 212 296-8083

Research Associate

Maya.Neuman@morganstanley.com +1 212 761-1946

Recent Outperformance Dylan Liu

Dylan.Liu@morganstanley.com +1 212 761-4519

Underestimates Cyclical Risks in Rauf Ural

Rauf.Ural@morganstanley.com +1 212 761-5958

2H

IT Hardware

North America

Off-cycle names have rallied ~40% on avg % in L3M as near- Industry View Cautious

term spending – incl pull-forward – has remained more resilient What’s Changed

than expected. We reflect that in our above-Street Apr/Jul Q Hewlett-Packard (HPQ.N) From To

Price Target $16.00 $17.00

forecasts. But with memory up 600%+ Y/Y, we believe demand

Hewlett Packard Enterprise

and margin headwinds are coming, keeping us Cautious. (HPE.N) From To

Price Target $25.00 $33.00

Dell Technologies Inc.

(DELL.N) From ToM

Key Takeaways Price Target $110.00 $170.00

HW has been a relative outperformer in the last 2.5 months given short covering

and near-term spend resilience/demand pull-forward.

Hardware (ex-AAPL) now trades at 26x NTM P/E, a 10x turn premium vs. prior

valuation peak, an all-time high vs. S&P, and a premium to blue chips like NVDA.

We believe mkt is missing 'the forest through the trees' as pull-forward, memory

inflation/supply shortages, and macro create downside margin/EPS risk in 2H.

As a result, we remain 'Cautious' our group, albeit with a more 2H-weighted

catalyst path than we originally hypothesized.

Into earnings, DELL (UW) setup is most tactically positive, followed by HPE (EW)

and then P (EW).