UBS’s 2025 Enterprise Hardware Outlook: Top Picks and Insights

UBS has unveiled its outlook for the enterprise hardware and networking sector in 2025, spotlighting Dell Technologies (NYSE:DELL) and TD SYNNEX (NYSE:SNX) as top picks while downgrading IBM (NYSE:IBM) and Pure Storage (NYSE:PSTG) to least favored. Here's a closer look at the key drivers behind these selections.

Top Picks for 2025

1. Dell Technologies (NYSE:DELL)

• AI Server Leadership: Dell is positioned as a leader in the AI server market, particularly within Tier 2 Cloud and enterprise segments, surpassing peers like Hewlett Packard Enterprise (NYSE:HPE).
• Infrastructure Solutions Growth: UBS projects a 10% revenue growth in Dell's Infrastructure Solutions Group (ISG), driven by increased demand for servers and AI infrastructure.
• PC Market Recovery: The PC market is expected to recover by at least 5%, boosting Dell's free cash flow (FCF) by 15% in 2025 and into low double digits by 2026.
• Valuation and Upside: Dell's shares trade at 12% of estimated 2026 FCF, presenting a compelling risk-reward ratio amidst end-market recoveries.

2. TD SYNNEX (NYSE:SNX)

• Growth in Billings: UBS forecasts 5% growth in billings from improving markets for PCs, networking, servers, and storage.
• Shareholder Returns: The company plans to return 50% of FCF through dividends and share buybacks, reducing its share count by 5% and driving 10% EPS growth.
• AI Infrastructure Expansion: TD SYNNEX's AI infrastructure unit, Hyve, is expected to generate several billion dollars in revenue, with margins exceeding corporate averages.
• Valuation Upside: Analysts anticipate the company's P/E multiple to rise from 9x to 10-12x, aligning it with legacy tech peers.

Least Favored Stocks

1. IBM (NYSE:IBM)

• UBS cites concerns over sluggish growth in IBM's core businesses, particularly as competition intensifies in cloud infrastructure and AI software.

2. Pure Storage (NYSE:PSTG)

• Challenges include narrower profit margins and rising competition in the data storage market, limiting Pure Storage's ability to sustain growth.

Sector Highlights for 2025

1. AI Infrastructure as a Growth Driver
   • Companies like Dell and TD SYNNEX are leveraging their leadership in AI server markets and infrastructure solutions to capture emerging demand.
2. Recovery in Core End-Markets
   • A rebound in PCs, networking, and server markets is expected to benefit hardware providers, marking a turnaround from recent stagnation.
3. Valuation Re-Rating
   • Analysts expect underappreciated businesses, such as TD SYNNEX's Hyve, to drive P/E multiple expansions across the sector.

APIs for Monitoring Performance

1. Key Metrics (TTM) API

   • Analyze key financial metrics, including P/E ratios, EPS growth, and FCF trends for Dell and TD SYNNEX.

2. Ratios (TTM) API

   • Compare valuation ratios across the sector, highlighting trends in P/E and profitability margins.

3. Advanced DCF API

   • Evaluate future cash flow projections to assess the intrinsic value of these stocks.

Conclusion

UBS's analysis underscores AI infrastructure growth, market recoveries, and valuation expansion as key themes driving opportunities in enterprise hardware for 2025. With Dell and TD SYNNEX poised for strong performance, investors may find these stocks attractive amid shifting sector dynamics.