AI boosts the local deployment of heating server market! Morgan Stanley raised the rating of CDW (CDW.US) and raised the target price of IBM (IBM.US), Dell Technologies, Inc. Class C (DELL.US).

Morgan Stanley released a report on Tuesday, upgrading the rating of CDW (CDW.US) from "neutral" to "buy" due to strong demand for corporate servers. At the same time, the bank raised the target price for IBM (IBM.US), Dell Technologies, Inc. Class C (DELL.US), and TD SYNNEX Corporation (SNX.US). The analyst team led by Erik Woodring stated in the report: "Although the memory inflation that is rare in a generation is posing challenges to the hardware market, the computing sector is showing strength against the trend. Demand for server updates in 2025, early procurement by enterprises, OEM supply shortages, and market share competition, coupled with more on-premise inference entering production environments (focused on data security), are collectively driving a rigid enterprise demand. The total addressable server market (TAM) is expected to grow by over 80% year-over-year in 2026, reaching $809 billion." In terms of specific target price adjustments, the target price for CDW was raised from $142 to $170; TD SYNNEX Corporation, which received a "buy" rating, saw its target price increase significantly by 26%, from $271 to $341; IBM and Dell Technologies, Inc. Class C, which both have a "neutral" rating, had their target prices raised from $225 to $267 and from $448 to $477, respectively. While Morgan Stanley believes that it is not currently a "revival of enterprise servers," it did find that enterprise server refresh activities are happening at higher prices, and the market is underestimating server revenue growth in 2026 and 2027. Woodring stated: "Until we have greater confidence in the sustainability of the enterprise server refresh cycle, we prefer not to chase the 'neutral' ratings of Dell Technologies, Inc. Class C and Hewlett Packard Enterprise Co. (HPE), although we believe the market is underestimating these two companies. Instead, we express a more positive view through the 'buy' ratings of TD SYNNEX Corporation and CDWwe are upgrading CDW from 'neutral' to 'buy'." The growth in demand for enterprise servers in the market is driven by multiple factors: scarcity of cloud computing power, the rise of Agentic AI, and the popularization of on-premise inference. Woodring stated: "According to disclosures from Dell Technologies, Inc. Class C and Hewlett Packard Enterprise Co., server orders in the April quarter grew by triple digits (i.e. over 100% year-over-year), reflecting this demand. As more and more enterprises realize the benefits of bringing computing power to the data edge rather than transferring data to the computing edge, adopting smaller open-source models, and managing local data privacy risks, it is expected that the demand for enterprise AI will continue to strengthen in the long term."