HP Inc. Shares Decline After Morgan Stanley Downgrade Amid Rising Memory‑Chip Costs

HP Inc. (HPQ) experienced a sharp decline in its share price following a “sell” downgrade from Morgan Stanley on November 17. The rating change, which lowered the firm’s price target, reflected concerns about margin compression caused by the recent surge in memory‑chip prices. The market reacted quickly, with HP’s stock falling roughly 7 % in early trade and slipping from a recent high toward the lower end of its 52‑week range.

Context: Memory‑Chip Price Dynamics

In the first quarter of 2025, DRAM and NAND flash prices have rebounded after a period of consolidation in 2023. According to the International Data Corporation (IDC), the average price of DDR4 memory rose 14 % year‑over‑year, while NAND prices increased 9 %. HP’s product mix—particularly its notebook, server, and peripheral lines—relies heavily on these components. An increase of 10 % in memory costs can erode gross margins by 2–3 %, a sensitivity that Morgan Stanley highlighted in its analysis.

Impact on HP’s Financial Profile

  • Gross Margin: HP’s gross margin for the fiscal year ended December 31, 2024, was 36.4 %, down 1.2 percentage points from the same period last year.
  • Operating Margin: Operating margin stood at 11.8 %, a decline of 0.8 percentage points.
  • EBITDA: EBITDA margin fell to 12.6 % from 13.4 %, reflecting higher component costs.

These metrics are consistent with industry peers such as Dell Technologies and Lenovo, which reported similar margin pressures due to component price hikes.

Broader Industry Sentiment

The memory boom has spurred a wave of scrutiny across the technology hardware sector. Analysts note that companies with diversified supply chains and higher manufacturing overheads—like HP—are more susceptible to component price swings. Conversely, firms with significant scale in semiconductor manufacturing or long‑term supplier contracts may mitigate impact.

Industry trend reports suggest that:

  • Capital Expenditure (CapEx) Adjustments: Many hardware makers are recalibrating CapEx plans, postponing new data‑center appliance launches until the memory price trajectory stabilizes.
  • Supply‑Chain Resilience: There is a growing emphasis on building multi‑supplier sourcing strategies and investing in on‑shoring initiatives to reduce exposure.

Expert Perspectives

Dr. Maya Singh, Senior Analyst at Gartner, comments:

“Margin compression from volatile memory prices is a transitory risk. Companies that can pass a portion of the cost through premium product differentiation or subscription‑based service models will fare better.”

John Alvarez, VP of Strategy at HP Inc., states:

“We are actively negotiating multi‑year agreements with key semiconductor suppliers to lock in pricing. Additionally, we are accelerating our shift toward high‑margin professional and enterprise solutions.”

Actionable Insights for IT Decision‑Makers

  1. Budget Planning: When forecasting procurement budgets, account for a 5–10 % variance in memory costs, especially for high‑performance servers and workstations.
  2. Vendor Negotiations: Leverage bulk purchasing agreements and explore bundled pricing with complementary peripherals to offset component cost increases.
  3. Technology Refresh Cycles: Consider extending refresh cycles for legacy devices that do not require high‑density memory, thereby deferring exposure to price spikes.
  4. Supply‑Chain Transparency: Implement tools that provide real‑time visibility into component supply chains to anticipate price movements and adjust procurement strategies accordingly.

Outlook

While the Morgan Stanley downgrade reflects immediate margin concerns, HP Inc.’s long‑term strategic initiatives—such as expanding its professional services portfolio and securing supplier agreements—position it to navigate the memory‑price volatility. Investors and IT leaders should monitor the company’s quarterly updates for signals on how effectively it is translating these strategies into sustainable profitability.