Investing.com -- Morgan Stanley upgraded shares of CDW (NASDAQ:CDW) Corp and Teradata Corp (NYSE:TDC) to Overweight on valuation and defensibility.
But amid slowing growth, elevated tariffs, and broader policy uncertainty in IT hardware brokerage reduced its 2025 and 2026 EPS forecasts by 15–18% and cut price targets by nearly 30% on average on sector calling for a multi-quarter hardware downcycle and warning that risks remain skewed to the downside.
“The wall of worry is still too high to climb,” analyst at Morgan Stanley said.
Uncertainty is near all-time highs and hardware spending is already slowing, analysts wrote, adding that reciprocal tariffs and geopolitical tensions are pressuring fundamentals.
Hardware stocks have underperformed by 12 percentage points since peaking in February, but Morgan Stanley cautioned that valuations — now around 10.2 times its 2026 EPS estimates, in line with prior troughs — could still fall further if a full recession materializes.
The firm outlined a new bear case that assumes a prolonged downturn, compared to its base case of a multi-quarter growth slowdown beginning in Q2 2025, with margin pressure from tariffs partly offset by cost controls.
Against this backdrop, Morgan Stanley upgraded CDW and Teradata. CDW’s diversified business model and 15x P/E valuation offer relative defensiveness in late-cycle conditions, while TDC trades below 9x 2026 EPS — a 10-year low — despite a growing cloud revenue mix and activist involvement that could prompt strategic shifts.
Morgan Stanley also flagged potential opportunities in disk drive stocks and Dell Technologies (NYSE:DELL), noting the latter’s U.S.-based server assembly could be a relative advantage in the AI space amid trade friction.
Still, the firm emphasized caution overall: “it’s too early to look toward the potential bounce off the trough, when IT Hardware stocks historically outperform”
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