Barclays cuts Dell, HPE and NetApp ratings as enterprise AI spending lags

Barclays cut its ratings on Dell Technologies, Hewlett Packard Enterprise and NetApp, challenging the idea that stronger enterprise sales signal an AI hardware buying wave. Dell shares fell 11% on October 14. The bank’s concern is timing: businesses are spending on AI, but its analysts see no meaningful acceleration in enterprise spending for these suppliers.

A hardware rally meets a neutral rating

CNBC reported that Barclays moved all three companies from buy-equivalent ratings to hold-equivalent ratings. Investor’s Business Daily said the new rating was equal-weight, or neutral. The change pulls back from recommending the stocks but stops short of a sell call. Barclays cited their sharp gains and the timing of enterprise AI adoption.

The gains preceding the downgrade were unusually large. Dell was up more than 300% this year, HPE had climbed about 160%, and NetApp had doubled, according to CNBC. Makers of servers and other data-center equipment had benefited from expectations of years of heavy purchasing tied to AI chips and systems.

Wednesday’s decline put Dell at the front of a sell-off in data-center equipment stocks. HPE and Super Micro also fell. The market reaction followed a downgrade whose rationale was narrower than a rejection of AI: Barclays questioned when enterprise customers would turn AI adoption into additional hardware spending for the three companies.

AI projects do not all start with hardware purchases

Barclays says customers are relying on cloud-computing providers for AI projects before investing in their own infrastructure, according to Investor’s Business Daily. That sequence separates spending on an AI project from buying equipment to run it internally. A business can begin using AI through a cloud provider without first placing its own hardware order.

The bank’s spending estimates help explain its caution. Its analysts put AI at about 5% of businesses’ IT budgets and hardware at roughly one-quarter of enterprise AI spending. Those figures describe different shares: the first measures AI against the overall technology budget; the second measures hardware within the smaller AI allocation.

Barclays acknowledged growing sentiment that enterprise AI adoption would prompt businesses to replace or upgrade their hardware. But it said it had not seen a meaningful spending inflection—a clear acceleration—for Dell, HPE and NetApp. The contrast is between an expected equipment-buying cycle and the enterprise spending pattern the bank says it sees now.

Higher memory prices complicate the sales signal

Barclays said higher memory costs, rather than a shift toward enterprise AI, accounted for more of the strength in enterprise revenue. Suppliers have passed those higher costs on to customers, its analysts said. So sales can rise in dollar terms because equipment costs more, even if customers are not buying more.

Barclays sees two risks from memory prices. Investor’s Business Daily reported that the bank warned high prices could squeeze suppliers’ profit margins. CNBC said Barclays also warned that prices returning to normal, and later falling, could weigh on infrastructure revenue. High prices raise component costs; lower prices could remove a boost to sales.