LENOVO GROUP (00992) hybrid AI showcases its muscles: value investors can go on a shopping spree!

Continuing to maintain high quarterly performance and achieving a new high after releasing the strongest AI portfolio, LENOVO GROUP (00992) has achieved outstanding performance, demonstrating significant results from its hybrid AI transformation and once again showcasing its strength in the market. It was reported that on November 15th, LENOVO GROUP released its Q2 performance for the 2025 fiscal year, with all indicators performing impressively. During the period, revenue and net profit attributable to shareholders were $17.85 billion and $359 million respectively, an increase of 24% and 44% year-on-year, exceeding market expectations. In the first half of the year, the company achieved revenue and net profit of $33.297 billion and $602 million respectively, an increase of 22% and 41% year-on-year. In fact, the company has increased its investment in AI research and development this year. On October 16, it held its annual global technology event, Tech World, where the three major business divisions showcased the most comprehensive AI product portfolio, gaining recognition from global chip giants and partners. Under the hybrid AI empowerment, all three business divisions achieved double-digit growth, driving record quarterly performance and proving to the market once again the huge success of its AI transformation. LENOVO GROUP has also gained recognition from long-term investors. In the past 7 years, its market value has nearly quadrupled. Recently, due to market fluctuations, its valuation has fallen, but with the expectation of future performance growth, it provides value investors with the opportunity to enter at a lower cost. Significant results from hybrid AI transformation LENOVO GROUP's Q2 performance showed comprehensive growth across the board, with the three major business divisions experiencing powerful growth potential in the wave of artificial intelligence development. During the period, the Intelligent Devices Group (IDG) revenue was $13.514 billion, an increase of 17.4% year-on-year, Infrastructure Solutions Group (ISG) revenue was $3.305 billion, an increase of 65.08% year-on-year, and Solutions and Services Group (SSG) revenue was $2.165 billion, an increase of 12.9% year-on-year, maintaining double-digit growth for 14 consecutive quarters. In the first half of the 2025 fiscal year, the above three revenues recorded growth of 14.52%, 65.1%, and 11.54% respectively, with revenue shares of 70.34%, 18.24%, and 11.42% respectively. The strong performance of the three major business divisions fully demonstrates the huge success of the company's hybrid AI transformation. IDG's launch of artificial intelligence products, especially AI PC, not only solidified the company's position as a global leader in PCs but also widened the gap with its competitors. ISG catered to the demand for computing power in AI, achieving above-market growth levels with innovative liquid cooling technology, hyper-converged architecture, and high-performance computing solutions. SSG benefited from the demand for hybrid AI, developing TruScale into a comprehensive "as-a-service" platform to seize rapidly growing market demands. The hybrid AI transformation not only changed the growth trajectory and expansion space of the business, but also improved the profitability of the business. In the first half of the 2025 fiscal year, IDG's operating profit margin was 7.29%, an increase of 0.4 percentage points year-on-year; ISG's profitability continued to improve, with the operating loss rate significantly narrowing to 1.13%; SSG continued to maintain a high-profit trend, with an operating profit margin of 20.7%, an increase of 0.2 percentage points year-on-year. Benefiting from the strong profitability of the business, LENOVO GROUP's cash flow remained strong, with free cash flow increasing by $801 million year-on-year in the first half of the 2025 fiscal year. The end-of-period cash and cash equivalents reached $4.179 billion, an increase of $619 million from the end of the 2024 fiscal year, with a net cash balance of $595 million at the end of the period. In addition, the company actively introduced strategic investors, welcoming the Saudi sovereign fund in Q1 to continue to increase its cash flow and prepare for the global and overseas output of AI products. Seizing the market's opportunities, LENOVO GROUP has fully embraced the development opportunities of the AI era in the next decade. AI achievements release future expectations 2024 was the year of large-scale AI model applications. From PCs, smartphones, smart cars, to other smart devices, the continuous iteration of AI technology has continuously stimulated end-user demand for AI products, while the demand for computing power in AI has also spurred an investment boom in AI infrastructure. It is worth noting that hybrid AI has become a major trend in AI development, with public domain AI technology promoting industry progress and private domain AI bringing differentiated advantages to peers. LENOVO GROUP had foresight and has continuously increased its research and development efforts in recent years, entering the AI chip field through investment and cooperation to drive its business towards a comprehensive transformation to hybrid AI. In terms of end terminals, the company is the first global manufacturer to launch AI PCs, and in October of this year, it showcased the most comprehensive AI industry chain combination at its technology conference, with multiple AI products having global uniqueness, solidifying its global leadership position in AI. In the 2025 fiscal year Q2, the company's three major business divisions achieved double-digit growth for the first time, demonstrating the effectiveness of the hybrid AI transformation. However, this is just the beginning, as 2025 will see a larger scale of AI infrastructure boom and a surge in demand for end-terminal AI products. As a global leader in AI supply, the company's performance growth will be even more rapid. Specifically, the core IDG business group of LENOVO GROUP is highlighted by its most eye-catching artificial intelligence product, the AI PC. This is a highly certain growth driver that will continue to push IDG's performance to new heights. According to IDC statistics, in Q3 2024, global PC shipments fell by 1.5% year-on-year, but Lenovo's advantage in AI PC's shipments exceeded the market average by 4.6 percentage points, with a global market share close to 24%, leading the second largest manufacturer by over 4 percentage points. According to forecasts, by 2027, AI PCs are expected to account for nearly 80% of the personal computer market, and Lenovo will establish its leadership position in the AI PC market with AI personalized computers and the new generation of Copilot+ series products, creating a more diverse range of AI devices.Data center, the company collaborates with NVIDIA, AMD, and Intel to provide enterprise with a full range of support from edge to cloud through its hybrid AI solutions, especially with AI servers equipped with Neptune liquid cooling technology. Recently, there have been reliable and significant news in the market that Lenovo will become "Fruit Chain" and design and produce AI servers for Apple. This not only brings more revenue to Lenovo but also proves Lenovo's technical strength as a top AI server manufacturer.According to IDC, the AI server market is expected to reach $31.79 billion by 2025, with a CAGR of 22.7% from 2023 to 2025. The company's data center solutions have shown advantages in diverse products and services in AI infrastructure. According to disclosures, its high-performance computing has won orders from important customers such as DreamWorks and the Max Planck Institute, and with the continuous release of order demand and the rapid growth of enterprise demand for cloud computing, edge computing, and high-performance computing, ISG is expected to maintain a high growth trend in Q2 in 2025. LENOVO GROUP's SSG is expanding in areas such as hybrid office, cloud management, and network security through its "as-a-service" products, providing enterprise customers with comprehensive support for digital transformation. The demand for hybrid AI is accelerating the release of enterprise intelligence, enabling its AI services to penetrate deeper into the industry. SSG, as the company's long-term cash cow, will continue to contribute to core profits even as it grows in scale. According to industry predictions, the global IT services market is expected to maintain stable growth of over 10% in the next three years, with artificial intelligence services growing at a rate more than twice that of the overall market. LENOVO GROUP will continue to embed artificial intelligence into key universal solutions and develop more native AI services to help customers more conveniently adopt AI technology to seize development opportunities. However, policies and strategies in various countries regarding AI may disrupt the balance of the global supply chain. As a global leader in AI applications, can LENOVO GROUP cope with potential challenges that cannot be ignored? Performance and valuation will face a double hit LENOVO GROUP is able to fully respond to global challenges without changing its future growth expectations, and may even gain a larger market share in the face of cyclical challenges, mainly based on two dimensions: The first dimension is that LENOVO GROUP's two core advantages ensure the release of AI results in its three major businesses in the future. The first is its research and development advantage, with increasing research and development ensuring products and technologies are at the forefront of the industry. The second is its supply chain advantage, maintaining long-term stable cooperation with global chip giants, continuously driving AI technological progress and development through collaborative R&D models. Under these two core advantages, LENOVO GROUP's AI product supply in its three major businesses is guaranteed, with a relatively limited impact from global supply chain imbalances. With global demand growth driving high performance under these conditions. The second dimension is the irreversible trend of AI investment in the industrial chain. Both domestic and foreign giants are building industrial chain advantages, from power to computing power to end products, gaining market leadership through first-mover advantages. From the current situation, in 2024, domestic communication giants increased their investment in computing power centers. Overseas chip giants attached importance to the domestic market, for example, Intel invested in Luxshare Precision Industry's subsidiary in June this year, and the two sides plan to cooperate in communication and data center business. In the second half of this year, overseas AI began to focus on power investment, with giants such as Google and Microsoft embracing nuclear power to solve the high power consumption problem of AI. These phenomena all illustrate the general trend of AI development. Chip giants such as Nvidia, AMD, Microsoft, and Meta are actively building core advantages in the industrial chain, especially in downstream terminals, and closely cooperating with LENOVO GROUP to jointly research and develop and launch AI products to meet the huge market demand for AI. With the dawn of the era of artificial intelligence, as a manufacturer with the richest AI terminal access and the largest global user base, Lenovo has shown its leading position in hybrid artificial intelligence through continuous innovation and the creation of differentiated competitive advantages. LENOVO GROUP is also favored by many securities investment banks. For example, a report from Guosen believes that Lenovo is a global leader in PC and IT infrastructure solutions, based on its PC business, deepening intelligent transformation, and its performance will benefit from the rapid development of the AI industry. It is expected that the company's revenue for the fiscal years 2025/26/27 will be $62.33 billion, $67.61 billion, and $72.14 billion, respectively, with net profits attributable to shareholders of $1.29 billion, $1.64 billion, and $1.90 billion, respectively, and is rated "outperforming the market." In addition, LENOVO GROUP CEO Yang Yuanqing has increased his holdings in Lenovo several times, Hong Kong Stock Connect funds continue to flow in, and the current shareholding has increased by over 60% since the beginning of the year. In conclusion, hybrid AI is driving LENOVO GROUP's performance. This Q2 is a starting point, benefiting from the wave of development of artificial intelligence. With its research and development technology and industrial chain cooperation advantages, its three major businesses will maintain high levels of performance growth and gain a larger market share in various segments of the AI industry chain. Investors are advised to continue paying attention to the AI PC, which will continue to consolidate the company's leading position in the global PC market, and with the growth of the ISG scale, profitability can also be expected. Returning to the capital market, although valuations have fallen recently, Lenovo remains one of the most ideal investment targets for long-term investors. Firstly, its market value has a long-term bullish trend, exchanging time for space, and long-term investors have gained considerable benefits. Secondly, the company provides stable dividends, with a dividend yield of 4%, and the future performance prospects are optimistic, making dividend returns still worth looking forward to. The company's valuation has fallen to technical support lines and may have touched the price at which value investors are willing to buy.