As Dell Technologies and HP prepare to report their latest quarterly results, Morgan Stanley is cautioning that the bar has been set high—perhaps too high. In a Monday preview of the so-called enterprise OEMs—hardware makers that sell computers, servers, and storage to businesses—the bank said it expects Dell, HP, NetApp, and Hewlett Packard Enterprise to beat Wall Street's July-quarter forecasts. But it warned that when a stock is already priced for good news, even a solid report can disappoint.
What's going on here?
Morgan Stanley's note highlights a classic earnings-season trap: expectations have run ahead of fundamentals. For Dell and HP, the market has already baked in strong results, leaving little room for any misstep. The bank specifically flagged HP's valuation and weakening trends in its PC and printing businesses as reasons for caution. If HP delivers merely in-line numbers, the stock could still fall because investors were hoping for more.
By contrast, Morgan Stanley sees the most attractive read-through at Hewlett Packard Enterprise (HPE), the company that split off from HP in 2015 and focuses on servers, networking, and hybrid cloud infrastructure. HPE's business is more tied to data-center spending and artificial intelligence-related demand, which has been a bright spot in the tech sector. The bank's view suggests that HPE's setup is cleaner: expectations are more reasonable, and the underlying business trends are more supportive.
Why does this matter?
For everyday investors, this is a reminder that earnings season isn't just about whether a company beats or misses the numbers—it's about how those numbers compare with what the market already expects. A company can post record profits and still see its stock drop if investors were anticipating even more. That dynamic is especially pronounced in the tech hardware space, where cyclical demand for PCs and printers can swing sharply with the broader economy.
HP's core markets—personal computers and printing—have been under pressure for some time. Remote-work booms and busts have made PC demand volatile, and the shift to digital documents has eroded the printing business. Morgan Stanley's warning reflects a broader concern: if these trends continue to weaken, HP may struggle to find growth catalysts, making its current valuation harder to justify.
Dell, meanwhile, has a more diversified portfolio that includes servers and storage, which benefit from corporate IT spending. But the company also faces intense competition and the same high expectations that Morgan Stanley flagged. When a stock has run up ahead of earnings, any hint of softness—whether from supply-chain issues, currency headwinds, or cautious guidance—can trigger a sell-off.
What it means for investors
For investors holding Dell or HP shares, the takeaway is to pay close attention not just to the headline earnings per share, but to the guidance and management commentary. Companies in this position often try to manage expectations by offering conservative outlooks, which can disappoint the market even if the quarter itself was strong.
Hewlett Packard Enterprise, on the other hand, may offer a more balanced risk-reward. Its focus on AI infrastructure and hybrid cloud puts it in a segment that has been attracting heavy investment. As Nvidia's earnings have shown, AI-related demand can move markets, and HPE is positioned to benefit from that trend without the same level of hype that surrounds some pure-play AI names.
That said, Morgan Stanley's note is a preview, not a prediction. The bank expects all four companies to beat estimates, but it's the reaction that matters. In a market where geopolitical tensions and rate concerns are also in play, even good earnings can get overshadowed.
What to watch next
Investors should watch for a few key things when Dell and HP report: PC shipment numbers, which industry trackers like IDC and Gartner publish; commentary on enterprise demand; and any updates on supply chains or component costs. For HP, the printing segment's trajectory will be crucial. For Dell, the growth rate of its infrastructure solutions group—which includes servers and storage—will be a focal point.
Also worth noting is the broader context. The tech sector has been rallying on AI optimism, but that has also raised the stakes. As Nvidia's earnings and the Jackson Hole speech set the tone for markets, any disappointment from major hardware makers could ripple through the sector. Conversely, if Dell and HP can beat and raise, it could reinforce confidence in the AI-driven spending cycle.
For now, Morgan Stanley's message is clear: be careful with Dell and HP heading into earnings. The stocks have little room for error, and the risk-reward is less favorable than at HPE. As always, it's not about whether a company beats—it's about whether it beats enough.
