Shares of Dell Technologies and Hewlett Packard Enterprise fell on Thursday as Wall Street took a cautious view on several information technology stocks that have stretched valuations without a clear revenue boost from artificial intelligence.
Barclays analyst Tim Long downgraded HPE, Dell Technologies, and NetApp to Equal Weight from Overweight. The firm lowered its price target on HPE to $77 down from $83 and reduced its price target on Dell stock to $574 from $603. Long left his NetApp price target unchanged at $219.
Dell stock fell nearly 9%; HPE stock, meanwhile, declined 8.25%; NetApp stock dropped 4.23%.
All three stocks have surged this year. Dell stock, as of the closing bell on Tuesday, had surged 355% this year while HPE had risen 186%. NetApp shares have gained 123%.
Barclays was taking a more cautious approach on the information technology hardware stocks with valuations skyrocketing this year as sky-high memory costs have boosted revenue.
Long said in in the research note that he entered the year "positive" on Dell, HPE, and NetApp and that investor concerns around increased memory costs were overdone. That theory has played out as all three stocks have risen sharply this year.
Whether the stock performances can continue is a separate matter as Long believes a major reason for the outperformance has been based on how the companies have offset rising memory costs.
Long noted these stocks don't appear to have a "meaningful AI inflection yet" that could produce product adoption, enhanced business performance, and significant revenue growth.
"We believe the strong enterprise revenues are more of a function of memory costs than a move to enterprise AI at this time," Long said.
Even with the downgrades from Barclays, Wall Street was still broadly bullish on HPE and Dell.
HPE stock has an average Buy rating with a price target of $73.05, based on the firms polled by FactSet. The stock has 12 Buy ratings, eight Hold ratings, and no Sell ratings. Dell, meanwhile, has an average Buy rating and an average price target of $599.69. The stock has 18 Buy ratings, seven Hold ratings, and two Sell ratings.
Even with Dell stock's sharp decline Wednesday, shares remained on pace for their best-ever yearly performance.
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