Morgan Stanley issued a report on Tuesday, upgrading its rating for CDW Corp (CDW.US) from Neutral to Overweight, citing robust enterprise server demand.
The firm also raised its price targets for IBM (IBM.US), Dell Technologies Inc. (DELL.US), and Synnex (SNX.US).
An analyst team led by Erik Woodring noted that while a generational memory inflation is challenging the hardware market, the computing segment is showing resilience.
They pointed to a confluence of factors driving firm enterprise demand: spillover refresh needs from 2025, early enterprise procurement, OEM supply shortages, market share competition, and more on-premise inference moving into production environments, which focuses on data security.
The total addressable market (TAM) for servers is projected to grow by over 80% year-over-year by 2026, reaching $809 billion.
Regarding specific price target adjustments, the target for CDW Corp was raised from $142 to $170.
The target for Synnex, which carries an Overweight rating, was significantly increased by 26%, from $271 to $341.
For IBM and Dell Technologies Inc., both rated Neutral, the price targets were raised from $225 to $267 and from $448 to $477, respectively.
While Morgan Stanley does not view the current situation as a full "enterprise server renaissance," it acknowledges that enterprise server refresh activity is occurring at higher price points and that the market is underestimating server revenue growth for 2026 and 2027.
Woodring stated that until there is greater confidence in the sustainability of the enterprise server refresh cycle, the firm prefers not to chase the rally in Neutral-rated names like Dell Technologies Inc. and Hewlett Packard Enterprise (HPE), despite believing market forecasts for these companies are too low.
Instead, Morgan Stanley is expressing a more positive view through its Overweight ratings on Synnex and CDW Corp, upgrading the latter from Neutral to Overweight.
The growth in enterprise server market demand stems from multiple factors, including scarce cloud computing capacity, the rise of agentic AI, and the proliferation of on-premise inferencing.
Woodring highlighted that server orders in the April quarter, as disclosed by Dell Technologies Inc. and HPE, grew by triple digits year-over-year, fully reflecting this demand.
As more enterprises recognize the long-term cost-effectiveness and security benefits of bringing compute to data rather than moving data to compute, using smaller open-source models, and managing on-premise data privacy risks, enterprise AI demand is expected to remain strong.
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