Lenovo Group stock hits all-time high: what next for this Dell, HP rival?

Lenovo Group stock jumped to a record high on Thursday as traders waited for its earnings report, which are expected to show that its growth accelerated amid the ongoing AI boom. It jumped to HKD 30.50 in Hong Kong, bringing its year-to-date gains to 225%, making it the best-performing company in the Hang Seng Index. 

Lenovo Group business is benefiting from the AI boom

Lenovo Group is a top player in the technology industry, where it sells laptops, desktop computers, servers, storage, and other networking equipment. Most of these products have seen strong demand this year as the AI boom gains steam.

Its top competitors like Dell, HP, HP Enterprise, and Super Micro Computer have all published strong results recently. They are also some of the best performers in Wall Street this year. 

The most recent results showed that Lenovo’s revenue jumped to $21 billion in the fourth quarter of the last financial year. This growth brought its annual revenue to $83 billion, with the management predicting that revenue will hit the $100 billion milestone in the next few years. Its fourth quarter revenue in the previous year was $16.8 billion.

The company’s revenue growth has been accompanied by strong profits as the prices of most of its products soared. Its operating profit jumped to $882 million in the fourth quarter, while the profits attributable to equity holders rose to $594 million. 

This double digit growth rate is expected to keep rising, which explains why analysts have a bullish outlook. 18 of them have a strong buy, while four of them have a buy rating on the stock. The highest target for the stock among analysts is HKD 40, up modestly from where it is today.

Lenovo has some notable catalysts ahead. For one, AI spending is expected to accelerate in the coming years, with companies like Anthropic, OpenAI, Microsoft, and Amazon continuing their spending. The biggest names in the US plan to spend over $750 billion this year, with some of these funds going to hardware providers like Lenovo.

Lenovo faces three key challenges

However, the company faces three major challenges. First, the cost of memory and other chips continues growing, which will affect its PC and other businesses. This memory growth explains why companies like Micron, SK Hynix, and Samsung have reported stellar growth this year.

Second, the PC business is struggling, with the hype surrounding AI PCs fading. IDC data shows that global PC industry growth turned negative this year, with shipments expected to drop by 11.3%.

Third, the company has become relatively overvalued, with its price-to-earnings ratio rising to 23, much higher than the ten-year average.

Lenovo Group stock price technical analysis

Lenovo stock chart | Source: TradingView

The daily chart shows that the Lenovo share price gapped higher in May this year after releasing its earnings. After that, it consolidated a bit, and then made a bullish breakout recently. 

Lenovo remains much higher than all moving averages, while the Average Directional Index (ADX) has jumped to 24, a sign that the trend is strengthening. Therefore, the stock may continue rising in the foreseeable future as the growth continues.