Chip Inflation Fuels IT Hardware Surge

Morgan Stanley has shifted to a more optimistic stance on the IT hardware sector, upgrading its industry view to "In-Line" from "Cautious." This change is driven by the observation that "chipflation," or high component inflation, is actually accelerating infrastructure demand rather than hindering it. Enterprises are now expediting purchases of PCs, servers, and storage to capitalize on what they perceive as favorable pricing, a behavior termed "Fear of Missing Procurement."

This trend is further supported by proprietary survey data indicating that pull-forward buying and AI-driven capacity expansions are propelling server and storage growth to all-time survey highs projected for 2027. Morgan Stanley is now favoring storage over servers and PCs, revising its earnings per share estimates for 2026 and 2027 upwards. However, the firm cautions that these tailwinds are primarily cyclical, noting that hardware stocks have surged over 100% since the start of 2025 and now trade at historically expensive levels, suggesting a potential cycle rollover beginning in 2027.