Hardware makers may soon show the impact of the Iran war despite their recent stock outperformance.
The S&P 500 Technology Hardware Index (^SP500-4520) has outperformed the S&P 500 (^GSPC) by 13% since February. Yet Morgan Stanley analyst Erik Woodring warns that the industry will face multiple headwinds in the near future.
Woodring noted that the firm is “Doubling down on our ‘Cautionary’ stance as memory tightness persists and signs of demand weakness begin to emerge.”
Morgan Stanley’s position largely applies to consumer hardware companies like Logitech (LOGI), a Swiss-American manufacturer that specializes in keyboards, webcams, and gaming accessories. In the past month, Logitech stock has risen over 2% and is up more than 30% over the past year. In comparison, Nvidia (NVDA) shares have slipped slightly over the past 30 days but remain up over 80% for the past year.
In the months ahead, the supply shock from the Iran war could result in a double whammy of higher costs and lower demand for consumer hardware companies.
Read more: How oil price shocks ripple through your wallet, from gas to groceries
While a conflict in the Middle East might seem far away from the computer factories of Asia, the two are linked by energy and shipping.
Memory chips require a massive, steady flow of natural gas to power production. Soaring energy prices have elevated the manufacturing costs. At the same time, the war has turned the Strait of Hormuz — a critical global shipping highway — into a bottleneck. Ships carrying the raw chemicals and gases needed to build electronics have been forced to take long, expensive detours.
Woodring said the shock is pushing memory contract prices up to 70% higher. This triggers a spike in costs for companies like HP (HPQ), Logitech, Cricut (CRCT), and GoPro (GPRO), which rely on high volumes of DRAM and NAND flash for their products. Since these companies may struggle to pass the costs along to consumers, Woodring expects a 5% to 10% drop in earnings.
NetApp (NTAP) — a data storage and cloud management firm — is also at risk. While it avoids direct consumer exposure, it lacks the buying power of tech giants such as Microsoft (MSFT), Google (GOOGL, GOOG), and Meta (META). These top AI players are aggressively acquiring Nvidia GPUs and hoarding the memory components that smaller hardware companies now struggle to afford.
That leaves companies like NetApp more exposed to shifting prices for the memory chips that power their storage systems.
On the consumer front, the predicted recovery in PC demand is not materializing, according to Jim Kelleher, director of research at Argus Research. Kelleher reported that memory now consumes over 50% of a computer’s total build price, up from just 18% before the conflict.
