The enterprise hardware industry is showing cautionary signs as slowing budgets and rising price sensitivity outweigh long-term artificial intelligence tailwinds, Morgan Stanley said in a note Tuesday.

The analysts said hardware budget growth is slowing, while value-added resellers, or VARs, expect customers to cut spending in response to rising input costs. Although artificial intelligence remains a long-term secular tailwind, these near-term pressures are outweighing that benefit. As a result, the analysts are downgrading their Hardware industry view to "Cautious."

The analysts said that until now, they had maintained an in-line outlook on the group, however, their latest Q4 CIO and VAR surveys point to a more challenging cyclical backdrop in 2026. CIOs now expect hardware budgets to grow just 1% year over year, which represents a 60 basis point decline from the analysts' prior survey and marks the weakest growth outlook in 15 years, excluding the COVID period.

As a result, the analysts said NetApp (NTAP) has been downgraded from equalweight to underweight with its price target cut from $117 to $89. Logitech (LOGI) has also been downgraded from equalweight to underweight, with its price target lowered from $107 to $89. CDW (CDW) has moved from overweight to equalweight, with its price target falling from $177 to $141. Price targets for Dell Technologies (DELL) and Hewlett-Packard (HPQ) were slightly reduced to $111 and $18, respectively.

"In conclusion, we believe the cyclical risks identified in November/December are turning more severe, and while long-term secular investment opportunities remain, we believe a more defensive positioning for our group is the correct approach at this time," the analysts said.

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