As 2025 approaches, Morgan Stanley advises IT hardware investors to remain steadfast in the latter half of the year. Analysts predict hardware growth will accelerate in 2025, favoring enterprise over consumer markets. The sector's price-to-earnings ratio, excluding Apple (AAPL, Financial), stands at a historic high of 19 times. Despite revenue and earnings growth between 4%-7%, much of this is already priced in. Enterprise hardware spending is expected to grow around 3%, with a current growth rate of 1.7% this year. Morgan Stanley remains optimistic about accelerating enterprise spending and a consumer market recovery, benefiting PCs, peripherals, storage, and servers.
Recommended stocks include Apple (AAPL, Financial), Dell Technologies (DELL), Seagate Technology (STX), and Kornit Digital (KRNT). However, stocks like Garmin (GRMN), Cricut (CRCT), and GoPro (GPRO) are considered overvalued, while Xerox (XRX) faces challenges in declining markets. Other hardware stocks such as CDW (CDW), Ingram Micro (INGM), and Logitech (LOGI) may be undervalued or poised for a stronger cyclical recovery in 2025. IBM (IBM) could face headwinds due to valuation and risk/reward dynamics.
