We expect PC market growth to decelerate vs. H1: Morgan Stanley

Morgan Stanley reported global PC shipments surged 7% year-over-year to 66.6 million units in Q2, significantly exceeding estimates due to robust commercial refresh, early AI PC adoption, and pre-tariff rush orders, with Apple notably gaining market share while Dell declined. However, the firm projects a significant slowdown for the second half, cutting full-year growth forecasts to 2% and expecting flat H2 shipments, primarily due to tariff uncertainty and demand pull-forward, which particularly impacted the U.S. market.

Analysis

Second-quarter global PC shipments provided a notable upside surprise, growing 7% year-over-year to 66.6 million units, which was 6% above Morgan Stanley's estimate. This strength was attributed to a combination of healthy commercial refresh demand, initial AI PC purchasing, and a pull-forward of orders ahead of anticipated U.S. tariffs. However, performance diverged significantly among vendors. Apple (AAPL) was the clear outperformer, with shipments surging 20.5% YoY, resulting in a 110 basis point market share gain and a potential $900 million upside to its Mac revenue forecast. In stark contrast, Dell (DELL) shipments fell 2% YoY, leading to a 130 basis point share loss, while HP (HPQ) also ceded market share despite modest growth. The positive Q2 results are overshadowed by a cautious outlook for the second half of the year. Morgan Stanley has cut its full-year PC shipment growth forecast from 4.2% to 2.0%, now anticipating flat (-0.1% YoY) shipments in H2. This revision stems from the belief that Q2 strength was partially a demand pull-forward, with ongoing tariff uncertainty cited as a primary headwind, a factor already evident in the flat performance of the U.S. market in Q2.

Key Decisions for Investors

• Given the forecast for a flat second half and a significant cut to full-year growth estimates, investors should adopt a more cautious stance on the PC hardware sector, recognizing that the strong Q2 was likely driven by a temporary pull-forward of demand.
• Apple's substantial outperformance and market share gains suggest relative strength, warranting consideration as a more resilient play within the sector compared to peers who are losing ground.
• The underperformance of Dell and HP, marked by shipment declines and market share erosion, highlights their vulnerability to industry headwinds and competitive pressure from Apple, suggesting investors should re-evaluate their positions in these names.
• Monitor developments in U.S. tariff policy closely, as it is identified as the key variable that will dictate purchasing sentiment, pricing, and overall market performance for the remainder of the year.