Key Takeaways:
Lenovo Group reported record first-quarter revenue of $26.9 billion, up 43% from a year earlier, as AI server demand accelerated.
"The results reinforce a structural growth narrative driven by artificial intelligence," Citi said in a research note published Aug. 13.
Revenue for the June quarter beat Citi's estimate by 24% and the market's by 20%. Non-GAAP net profit rose 176% to $1.08 billion, exceeding Citi's forecast by 64% and consensus by 149%, while the non-GAAP net margin widened to 4%.
The stock hit an all-time high of HKD 30.50 in Hong Kong, bringing year-to-date gains to 225% and making Lenovo the best performer in the Hang Seng Index. Citi set a HK$31 target price, based on a sum-of-the-parts valuation of 13.6 times forecast 2028 earnings, with the ISG server unit valued at 16.7 times.
Citi values the IDG and SSG businesses at 10 times earnings, in line with peers, and the ISG infrastructure unit at 16.7 times. The bank cited strong server demand and profitability, alongside stable personal computer, mobile and services performance.
Lenovo's AI-driven growth has lifted full-year revenue to $83 billion, with management predicting the company will reach the $100 billion milestone within a few years. The company competes with Dell, HP, HP Enterprise and Super Micro Computer, all of which have reported strong results this year.
The results come as major US technology companies plan to spend more than $750 billion on AI this year, with some of those funds flowing to hardware providers like Lenovo. Analysts are broadly bullish, with 18 rating the stock a strong buy and four a buy, and the highest target at HKD 40.
Lenovo faces headwinds, including rising memory and chip costs that squeeze margins, and a PC market that IDC expects to shrink 11.3% this year as the hype around AI PCs fades. The stock's price-to-earnings ratio has climbed to 23, above its 10-year average.
The earnings beat confirms that AI infrastructure spending is flowing through to hardware makers. Investors will watch whether the PC segment can hold up as memory costs rise and whether Lenovo can sustain its AI server momentum into the second quarter.
This article is for informational purposes only and does not constitute investment advice.
