Bernstein Initiates Coverage on U.S. IT Hardware, Citing AI-Driven "Intelligence Revolution"

Bernstein Identifies "Intelligence Revolution" in IT Hardware

Bernstein has initiated coverage on the U.S. IT hardware sector, forecasting a substantial growth phase predicated on the expanding influence of artificial intelligence (AI). The investment firm has termed this period the "Intelligence Revolution," underscoring AI's role in reshaping market dynamics and creating significant opportunities within the industry. This analysis has led to Outperform ratings for several key players, including Apple (AAPL), Dell (DELL), Seagate (STX), and SanDisk (SNDK), identifying them as primary beneficiaries of this transformative trend.

Details of the AI-Driven Market Expansion

Bernstein's analysis highlights a profound expansion of the market, particularly in enterprise inference, which is projected to reach an estimated $1.3 trillion by 2030. This represents a robust 67% Compound Annual Growth Rate (CAGR) between 2025 and 2030. The firm notes that structural headwinds historically faced by IT hardware, such as Moore's Law, Cloud commoditization, and generalized commoditization, are now abating. This shift, coupled with AI's ability to significantly expand the addressable market, is expected to drive a sustainable increase in spending across the sector. Furthermore, the "data explosion" amplified by AI is anticipated to boost storage demand in data centers, with a projected 23% CAGR through 2030.

Company-Specific Outlooks and Valuations

Apple (AAPL) has been rated Outperform with a price target of $290. Bernstein views Apple as a "gateway to the Intelligence Revolution," particularly through its potential in on-device AI. The recent Google remedies decision is seen as mitigating downside risks and opening pathways for Apple to integrate Gemini's AI capabilities. The firm values Apple at 32x its fiscal year 2027 (FY27) basic EPS estimate of $9.03, implying an enterprise value of 29.8x its projected $143 billion FY27 free cash flow.

Dell (DELL) also received an Outperform rating and a price target of $175. Dell has demonstrated consistent outperformance against its peers and is expected to continue gaining market share, particularly in AI servers and storage. The firm recently reported $8.2 billion in AI server revenue for its July quarter. Bernstein considers Dell inexpensive relative to its growth profile, valuing it at 14x its estimated earnings of $12.59 for FY2028/CY2027, which implies an enterprise value of 17.3x its projected $8.1 billion FY27 free cash flow.

Seagate (STX), with an Outperform rating and a $250 price target, is benefiting from both cyclical strength in Hard Disk Drives (HDDs) and technological leadership in Heat-Assisted Magnetic Recording (HAMR). Despite recent stock appreciation, Bernstein believes Seagate has further upside potential, citing an undemanding valuation given its projected 20%+ EPS CAGR. Seagate is valued at 18.5x its FY27 EPS estimate of $13.27, implying an enterprise value of 22.8x its projected $2.5 billion FY27 free cash flow.

SanDisk (SNDK) has been rated Outperform with a price target of $120. Bernstein considers SanDisk significantly undervalued following its spin-out from Western Digital. As a leader in NAND technology, a foundational component of the Intelligence Revolution, SanDisk is valued at 10x Bernstein's calendar year 2027 (CY27) EPS estimate, implying an enterprise value of 13.4x its projected $1.3 billion FY27 free cash flow.

Broader Market Context and Potential Risks

While Bernstein acknowledges "near-term fears of an AI bubble," analysts assert that the "risk/reward skews to the upside," supported by healthy early demand signals. The firm also highlighted that "Hardware stock dispersion is high and valuations are relatively attractive, creating long-term and short-term opportunities." The competitive landscape for AI hardware is intensifying, with NVIDIA facing challenges from rivals like Advanced Micro Devices (AMD) and Intel, as well as hyperscalers such as Amazon (AMZN), Google (GOOGL), Microsoft (MSFT), and Meta Platforms (META), which are developing custom AI silicon. This dynamic environment suggests potential shifts in market share and pricing power, particularly in inference workloads.

Analyst Perspective and Future Outlook

Bernstein's comprehensive analysis underscores a pivotal moment for the IT hardware sector, moving past traditional limitations into an era dominated by AI-driven growth. The long-term outlook suggests a sustained period of increased spending and innovation, particularly benefiting companies adept at integrating and leveraging AI capabilities. Investors will closely monitor corporate spending trends, technological advancements, and the evolving competitive landscape for AI hardware to gauge the ongoing momentum of this "Intelligence Revolution." IBM's quantum computing initiatives were also noted as a potential avenue for future business growth, indicating the broad scope of technological transformation anticipated within the sector.