Barclays cuts Dell, HPE, NetApp; Dell falls 11%

Data center server and backend equipment makers had been Wall Street favorites this year, on optimism they would sell huge volumes of gear tied to AI chips and systems for years into the future. That run left Dell up more than 300% this year, HPE up about 160% and NetApp doubled — a setup Barclays cited when it cut all three to hold from buy.

The bank's argument is about where the revenue is coming from. It says increased revenue reflects the global memory shortage rather than enterprise AI adoption, and that infrastructure companies have passed higher memory prices along to customers. Only about a quarter of total enterprise AI spend goes toward hardware, its analysts found, and businesses typically allocate just 5% of IT budgets to AI. Normalizing and eventually declining memory prices could then weigh on infrastructure-related revenue.

Memory is a notoriously cyclical business, and this week added pressure: China's ChangXin Memory Technologies reported progress over the weekend on a new chip structure. Micron is down 11% for the week, South Korea's SK Hynix has tumbled 13% in U.S. trading and Western Digital has dropped more than 8%. Sentiment had already shifted, partly on concerning revenue figures out of OpenAI and on fears that rising interest rates will make a debt-reliant buildout harder to finance.