The PC industry prospered when the world locked down in 2020. But an uncertain macro environment as inflation rises and geopolitical tensions brew threatens these technology companies, according to Morgan Stanley. Analyst Erik Woodring downgraded technology hardware makers Dell and HP Inc on Thursday, citing macro uncertainty and a "cautious hardware outlook." The analyst now has an equal weight rating on Dell and rates HP Inc as underweight. Woodring also lowered the bank's consumer PC shipments forecast to an 11% year-over-year decline from 8%, noting he expects Dell's total shipments to remain flat, while HP will decline 6%. "With a PC supply/demand rebalance nearing, return-to-work trends normalizing, and a more cautious macro outlook likely to negatively impact 2022 hardware spending, we cut our PC market forecast and downgrade HPQ to Underweight (from Equal-weight) and DELL to Equal-weight (from Overweight)," he wrote. Along with the downgrade, Woodring reduced his price targets on both stocks. The analyst now has a target of $60 per share on Dell, implying an upside of 10.5% from Wednesday's close. He also lowered his HP Inc target to $31 per share, which calls for a decline of 20.2%. Despite ongoing supply chain constraints, the two stocks are up in March. HP Inc shares are up 13% month to date, and Dell has popped 6.6% in that time. Across the technology industry, the hardware market is among one of the top-performing stock groups year-to-date, but Woodring thinks the industry will shrink as investors "flock to safety amid rising rates." "We believe our late cycle thesis remains intact and expect Hardware fundamentals to deteriorate in 2022 as net income revisions flatten and growing macro uncertainty increases the potential of negative hardware budget cuts," he wrote.
Enrique Lores, CEO, HP
Scott Mlyn | CNBC
The PC industry prospered when the world locked down in 2020. But an uncertain macro environment as inflation rises and geopolitical tensions brew threatens these technology companies, according to Morgan Stanley.