Continuing to maintain a high level of quarterly performance. After releasing the strongest AI combination, Lenovo Group (00992)'s performance hit a new high. The hybrid AI transformation achieved remarkable results, once again showing muscle to the market.

The Zhitong Finance App learned that on November 15, Lenovo Group released Q2 results for the 2025 fiscal year. All indicators were impressive. Revenue and shareholders' net profit for the period were 17.85 billion US dollars and 0.359 billion US dollars, with year-on-year increases of 24% and 44%, respectively, exceeding market expectations. In the first half of the year, the company achieved revenue and net profit for shareholders of US$33.297 billion and US$0.602 billion, up 22% and 41%, respectively.

In fact, this year, the company increased its investment in AI research and development. On October 16, the annual global technology event Tech World was held. The largest AI product portfolio in the three major businesses was unveiled, which was recognized by global chip giants and partners. Empowered by hybrid AI, the company's three major businesses have achieved double-digit growth, driving record high quarterly results and proving to the market that AI transformation has been a huge success.

Meanwhile, the Lenovo Group has also been recognized by long-term investors. Over the past 7 years, its market value has nearly quadrupled. Recently, due to market shocks, the valuation has declined somewhat, but “reversing and picking up people”, in anticipation of future performance growth, has instead given value investors a chance to get on the bus at a lower cost.

Hybrid AI transformation has achieved remarkable results

Lenovo Group's Q2 performance grew across the board. Under the wave of artificial intelligence development, the three major business operations have exploded with strong potential for growth. During this period, Smart Device Business Group (IDG) revenue was 13.514 billion US dollars, up 17.4% year on year; Infrastructure Solution Business Group (ISG) revenue was 3.305 billion US dollars, up 65.08% year on year; Solution Services Business Group (SSG) revenue was 2.165 billion US dollars, up 12.9% year on year. It has maintained double digit growth for 14 consecutive quarters.

In the first half of fiscal year 2025, the three major revenues recorded increases 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 businesses fully demonstrated the tremendous results of the company's hybrid AI transformation. IDG's launch of artificial intelligence products, particularly AI PCs, not only stabilized the company's leading PC position in the world, further widening the gap between peers; ISG met AI's demand for computing power and obtained a level of growth exceeding market expectations with innovative liquid cooling technology, hyperconverged architectures, and high-performance computing solutions; SSG benefited from the demand for hybrid AI and built TruScale as a comprehensive “as-a-service” platform to grasp rapidly growing market demand.

The hybrid AI transformation has not only changed the growth curve and growth space of the business, but also enhanced the profitability of the business. In the first half of fiscal year 2025, IDG's operating profit margin was 7.29%, up 0.4 percentage points year on year; ISG's profitability continued to be optimized, and the operating loss ratio narrowed sharply to 1.13%; SSG continued to maintain a high profit trend, with an operating profit margin of 20.7%, up 0.2 percentage points year on year.

Thanks to the strong profitability of the business, Lenovo Group's cash flow remained strong. Free cash flow increased by 0.801 billion US dollars year-on-year in the first half of fiscal year 2025, and the year-end cash equivalent reached 4.179 billion US dollars, an increase of 0.619 billion US dollars over the net end of fiscal year 2024, and net cash at the end of the period was 0.595 billion US dollars. Furthermore, the company actively introduced strategic investors and introduced Saudi sovereign funds in Q1. On the one hand, it continued to increase cash flow, and on the other hand, it prepared for globalization and overseas export of AI products. Seizing market opportunities, Lenovo Group has fully embraced the development opportunities of the next ten years in the AI era.

AI results unleash future expectations

2024 is the first year of application of AI models. From PCs, mobile phones, smart cars, to other smart devices, the continuous iteration of AI technology continues to stimulate demand for AI products by end users, and AI requirements for computing power are also driving a wave of investment in AI infrastructure. It is worth noting that hybrid AI has become a major trend in AI development. Sharing AI technology in the public domain drives industry progress, and private AI brings differentiated advantages to peers.

Lenovo Group has continued to step up research and development efforts in recent years, entering the field of AI chips through investment and cooperation, and promoting the full transformation of the business to hybrid AI. In terms of terminal results, the company was the world's first leading manufacturer to launch an AI PC. Furthermore, it demonstrated the world's most complete AI industry chain portfolio at the October Science and Technology Conference. Various AI products are globally unique, consolidating its leading position in global AI.

In Q2 of fiscal year 2025, the company's three major businesses achieved an overall double-digit growth rate for the first time, showing the transformation results of hybrid AI, but this is only the beginning. 2025 will usher in a larger wave of AI infrastructure and an explosion in demand for terminal AI products, and the company's performance growth rate will be even more rapid as a global AI supplier.

Specifically, the IDG Business Group, which is the core of the Lenovo Group, has no more prominent artificial intelligence products than AI PCs. This is a highly deterministic growth that will drive IDG's performance to new highs.

According to IDC statistics, global PC shipments fell 1.5% year-on-year in Q3 in 2024, while Lenovo's shipment volume was 4.6 percentage points higher than the market average, with a global market share of nearly 24%, leading the second-largest manufacturer by more than 4 percentage points. According to agency forecasts, AI PCs are expected to account for nearly 80% of the PC market by 2027. With artificial intelligence personalized computers with five characteristics and next-generation Copilot+ series products, Lenovo will establish Lenovo's leading position in the AI PC market and create more diverse artificial intelligence devices.

The wave of AI infrastructure has had the greatest impact on ISG's business. ISG focuses on high-performance computing, edge computing, and data centers. Through cooperation with NVIDIA, AMD, and Intel, the company's hybrid AI solutions can provide enterprises with full-chain support from edge to cloud, especially AI servers equipped with Neptune liquid cooling technology. Recently, there has been major reliable news in the market. Lenovo will become a “fruit chain” to design and produce AI servers for Apple. This will not only bring more revenue to Lenovo, but also prove Lenovo's technical strength as a top AI server manufacturer.

According to IDC, the AI server market is estimated to be USD 31.79 billion in 2025, with a CAGR of 22.7% in 2023-2025. The company's data center solutions have shown advantages in diverse products and services in AI infrastructure. According to the disclosure, its high-performance computing has won orders from important customers such as DreamWorks and Max Planck Research. 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 expands in the fields of hybrid office, cloud management, and network security through “as-a-service” products to provide enterprise customers with one-stop digital transformation support. Hybrid AI accelerates the release of demand for enterprise intelligence, and makes its AI services penetrate the industry. As the company's long-term profitable dairy cow, SSG will continue to contribute to core profits as scale increases.

According to agency forecasts, the global IT services market is expected to maintain steady growth of more than 10% over the next three years, with artificial intelligence services growing more than twice as fast as the overall market. Lenovo Group will continue to embed artificial intelligence into key general solutions while developing more native artificial intelligence services to help customers more easily adopt artificial intelligence technology to seize development opportunities.

However, countries' policies and strategies on AI may stir up imbalances in the global supply chain. Can Lenovo Group, as a global leader in AI applications, meet potentially unavoidable challenges?

Results and valuations will usher in a double hit

Lenovo Group can fully meet global challenges and future growth expectations will not change, and even gain a larger market share in cyclical challenges, mainly based on two major dimensions;

The first dimension is Lenovo Group's two core strengths to ensure the release of AI results in the three major businesses in the future. First, R&D advantages ensure that products and technology are at the cutting edge of the industry; second, supply chain advantages maintain long-term and stable cooperative relationships with global chip giants, and continuously promote the progress and development of AI technology through cooperative R&D models. Under the two core advantages, the supply of AI products for Lenovo's three major businesses is guaranteed, and imbalances in the global supply chain have little impact. As global demand grows, it drives high performance growth.

The second dimension is the irreversible trend of AI investment in the industrial chain. Domestic and foreign giants are building industrial chain advantages, from electricity to computing power to terminal products, to gain market opportunities through first-mover advantages. Judging from the phenomenon, domestic telecommunications leaders increased the construction of computing power centers in 2024, and overseas chip giants paid attention to the domestic market. For example, Intel took a stake in Lixun Precision's subsidiary in June this year, and the two sides plan to cooperate in communications and data center business. Beginning in the second half of this year, overseas AI began to focus on electricity investment. Giants such as Google and Microsoft are embracing nuclear power to solve the problem of AI's high power consumption.

These phenomena all confirm the general trend of AI development. Chip giants such as Nvidia, AMD, Microsoft, and Meta are actively building core advantages in the industrial chain. In particular, downstream terminals and Lenovo Group cooperate deeply to jointly develop and launch AI products to meet the huge demand for AI in the market. With the beginning of the era of artificial intelligence, as the manufacturer with the richest AI terminal portals and the largest number of users in the world, Lenovo has demonstrated a leading position in hybrid artificial intelligence by creating differentiated competitive advantages through relentless innovation.

Lenovo Group is also favored by many brokerage investment banks, such as the Guoxin Securities Research Report, which believes that Lenovo is a global leader in PC and IT infrastructure solutions, and that its performance will benefit from the rapid development of the AI industry. It is estimated that the company's revenue for the 25/26/27 fiscal year will be 62.33/67.61/72.14 billion US dollars, and net profit of 1.29/1.64/1.9 billion US dollars, giving it a “better than market” rating. In addition, Lenovo Group CEO Yang Yuanqing has also increased his holdings of Lenovo several times. Hong Kong Stock Connect continues to have a net inflow of capital. Currently, the amount of shares held has increased by more than 60% compared to the beginning of the year.

In summary, hybrid AI is driving the performance of Lenovo Group. This Q2 is the starting point, benefiting from the development wave of artificial intelligence. With R&D technology and industrial chain cooperation advantages, the three major businesses will maintain a high level of performance growth and gain greater market share in various market segments of the AI industry chain. The AI PC that has attracted investors' attention will continue to stabilize the company's leading PC position in the world, and profits can be expected as ISG grows in scale.

Returning to the capital market, despite the recent decline in valuation, Lenovo is still one of the most ideal investment targets for long-term activists. First, the market capitalization is bullish for a long time. Long-term investors have benefited a lot. Second, the company has paid steady dividends. The dividend income is also good. The dividend rate has reached 4%. The future performance prospects are optimistic, and dividend returns are still worth looking forward to. However, the company's valuation has fallen back to the technical support line, or has already touched the price level that price investors are buying the goods.