The stock price of Hewlett Packard Enterprise (HPE) sank Wednesday after a critical analyst's report cited the company's extensive exposure to the slowing servers and storage market.
Morgan Stanley downgraded Hewlett Packard Enterprise to equal weight from overweight, while also cutting its price target to $15 a share from $21.
The stock fell 0.8% by the close of trading on Wednesday to $14.32.
Hardware spending plans by companies are decelerating faster than any other technology sector, with growth expected to come in at just 2.2%, said Morgan Stanley, citing surveys of U.S. and European chief information officers.
By contrast, software spending is expected to edge up 5.2%, while growth in services will expand by 4%, according to the CIO surveys.
That has clouded the short-term outlook, even as the long-term prospects for the hardware sector remain bright. New workloads like "AI/ML" and edge computing "do pull new hardware and we see service and storage companies well positioned to participate in new deployments long-term," Morgan Stanley reported.
However, slowing growth "due to waning cyclical benefits ... makes it more difficult to own hardware-heavy data center stocks" in the near term, Morgan Stanley noted.
The server and storage market currently accounts for 66% of HPE's revenue, according to Morgan Stanley.