Morgan Stanley: The US hardware sector will face a severe test in 2026, but there are still structural opportunities. Optimistic about five core targets such as Apple and Western Digital.

Morgan Stanley raised target prices for several companies, including Apple Inc. (AAPL.US), when highlighting the outlook for the North American IT hardware industry by 2026. The bank pointed out that high valuations, macroeconomic fluctuations, and rising memory chip costs could narrow the excess returns range in the hardware sector by 2026. Led by analyst Erik Woodring, the Morgan Stanley analyst team stated that hardware stocks in 2025 showed a pattern of "differentiation between the first and second halves": in the first half, they faced selling pressure due to tariff policies, while in the second half, they rebounded driven by the AI application frenzy and steady growth in traditional hardware. As of now, the hardware sector's valuation has rebounded nearly 6 times from its low point in April to reach a record high, with a projected 17% increase in net profits over the next 12 months. The analysts added that the hardware sector outperformed the market by 52% in 2025, although lower than the average of 83% in the early cycle, it still exceeded the 50% level. They predict that the hardware sector will face more challenging conditions in 2026 due to the erosion of most companies' profitability space by the "super cycle" of memory chips, with the trend of narrowing excess returns typically occurring in the later stages of the cycle. However, analysts believe there are still structural opportunities in 2026, with Western Digital Corporation (WDC.US), Seagate Technology Holdings PLC (STX.US), Apple Inc., TD Synnex (SNX.US), and Teradata (TDC.US) being identified as their top five core overweight targets. They cautioned, however, that high valuations, peak earnings revisions, and headwinds from memory chips could potentially dampen the leadership space in the IT hardware industry in 2026. Analysts are particularly cautious about hardware original equipment manufacturers such as Dell Technologies, Inc. Class C (DELL.US) and HP Inc. (HPQ.US), due to their significant exposure to memory chip risks. They pointed out that rising memory chip costs in 2026 could lead to significant price increases in enterprise and consumer market products, exacerbating demand elasticity risks and putting pressure on hardware procurement budgets. Specifically, Morgan Stanley raised its target price for Apple Inc. from $305 to $315, Seagate Technology Holdings PLC from $270 to $337, Western Digital Corporation from $188 to $228, and Teradata from $30 to $35. Some stocks saw a decrease in target prices, with CDW (CDW.US) going from $191 to $177, TD Synnex from $181 to $177, Logitech (LOGI.US) from $108 to $107, and Ingram Micro (INGM.US) from $23 to $21.