Data center stocks took a major hit on Monday after Morgan Stanley downgraded seven hardware companies, including Dell and Hewlett Packard Enterprise .
The bank double-downgraded Dell from overweight to underweight and downgraded HPE from overweight to equal weight.
Dell and HPE closed down 8% and 7%, respectively.
HP Inc , Asustek and Pegatron were also downgraded from equal weight to underweight, while Gigabyte and Lenovo were lowered from equal weight to overweight. All companies saw shares dip as much as 6%.
Morgan Stanley analysts wrote that computer makers are in the midst of an unprecedented pricing "supercycle," as hyperscalers continue to accelerate data center demand, pushing hardware valuations to reach all-time highs.
Rising costs in the DRAM, dynamic random access memory, and NAND memory, a flash memory typically used in memory cards, businesses could put pressure on margins, especially as memory fulfillment rates may fall as low as 40% over the next two quarters, according to the bank.
"This as an emerging, and potentially significant, risk to CY26 earnings estimates for our Global Hardware OEM/ODM universe, where memory accounts for 10-70% of a products' bill of materials," analysts wrote.