In a significant development within the landscape of global technology, Lenovo Group has recorded an impressive doubling of its net profit and substantial revenue growth, achieving its best financial performance to dateThis remarkable turnaround comes as the company’s stock price and market capitalization soar to historical highs, signalling a robust acceptance of artificial intelligence (AI) across its operations.

On February 21, Lenovo Group (992.HK) witnessed a 15.45% increase, closing at HKD 13.6 per shareOver the past month, the stock has surged by more than 48.6%, culminating in a market value of HKD 168.7 billion, surpassing its previous peak in 2015. Analysts from leading investment banks, including Goldman Sachs, Morgan Stanley, and DBS Bank, have raised their target prices for Lenovo’s stock, placing 'buy' or 'add' ratings, which reflects their optimism towards the future growth of AI PCs, AI servers, and various AI solutions.

As a prominent beneficiary of the recent AI boom, Lenovo’s strategic investments in AI are yielding fruitful resultsThe company has transformed from merely a "PC manufacturer" into a full-stack AI service providerThis transition is augmented by the advent of their DeepSeek technology, which is primed to catalyze the AI revolution at the edge of computingAs we approach the critical point of AI democratization, Lenovo's hybrid AI strategy promises to deliver considerable dividends.

CEO Yang Yuanqing, in a recent interview, expressed that AI technologies characterized by high efficiency and reduced costs are accelerating developments in personal and edge intelligenceThis transformation aligns closely with Lenovo’s early-established vision for hybrid AI, enhancing the deployment and customization of AI within enterprises.

Yang affirmed Lenovo’s commitment to advancing more powerful computing and efficient models across various devices while optimizing intelligent ecosystemsThrough innovative device modalities and enhanced inter-device connectivity, Lenovo aims to cultivate an ecosystem of key applications to deliver an integrated AI experience across devices and ecosystems.

Goldman Sachs has published reports that regard Lenovo as an early adopter of AI PCs, while Huatai Securities has included Lenovo among "the seven giants of Chinese technology," alongside Alibaba and Tencent, positioning it as a core asset in the age of AI empowerment.

This metamorphosis signifies Lenovo’s strategic upgrade

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Once categorized as a "traditional manufacturing enterprise," Lenovo is now an integral force in Chinese technological innovation.

Moreover, Lenovo’s ascendance mirrors the shifting global dynamics of technology, reflecting the profound value recalibration of Chinese tech stocksThese companies are transitioning from dependence on overseas markets to setting local pricing standards.

Despite their recent successes, these major players face numerous challenges, including global supply chain disruptions and intensified competition in computational powerTheir strategic resolve will be tested as they continue to innovate at the foundational technology level, which is essential for establishing long-term competitiveness amidst a turbulent value reassessment landscape.

While the newly minted “seven giants” of Chinese tech each present diverse business models, they all share a pivotal strategy centered on AI-driven transformationAI is not just reshaping valuations—it is redrawing the boundaries of growth within the tech stock sector.

Lenovo, renowned for its dominance in the PC market, is broadening its AI initiatives beyond traditional hardware to encompass AI infrastructure, operational services, and solutions, thereby hoping to capitalize on the burgeoning demand for AI applications.

To summarize, Lenovo is fostering vertical integration capabilities that encompass "hardware + AI + services" in the competitive AI landscape.

As of the third fiscal quarter for the 2024/25 financial year ending December 31, Lenovo’s AI PC sales have surpassed expectations, representing a 15% market share in China, reaching its annual target ahead of scheduleAdditionally, Lenovo commanded a remarkable 24.3% share in the global PC business, outperforming its nearest competitor by nearly five percentage points, thus extending its leading edge.

Currently, Lenovo’s AI PCs, smartphones, and tablets are fully integrated with the cloud-based DeepSeek-R1 high-performance model

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This positions Lenovo as the first brand to deploy this large model on the edge, underscoring its innovative endeavors.

The cornerstone of Lenovo’s meteoric rise in market value is its forward-thinking hybrid AI strategyUnlike cloud-only AI providers like OpenAI, Lenovo has pursued a differentiated approach by using endpoint devices as access points and seamlessly integrated private and public cloud solutions to create an AI ecosystem that caters to both personal and enterprise applications.

This model of “lightweight edge + deep cloud collaboration” reduces AI deployment costs while creating ecological barriers through scenario-driven applications, paralleling the ecosystem-building logic of U.S. tech giants like Microsoft and Nvidia.

According to Tian Feng, a seasoned AI analyst and director of the Kuai Si Man Xiang Research Institute, Lenovo has several unexploited potentials awaiting realizationFirstly, hardware terminals represent a “new entry point,” where lighter models can tap into incremental marketsThe DeepSeek platform has the potential to transform traditional manufacturing into service-oriented platforms, expanding the post-service market for consumer electronics dramatically.

Secondly, there is the “new architecture” formed by the integration of edge and cloudThe collaboration of lightweight edge models with robust cloud models will stimulate the growth of AI applications embedded in personal terminals such as AI PCs and tablets, similar in concept to Microsoft's business model involving "GPT + Azure + Windows computers."

Finally, the AI application market is on the precipice of explosionWith advancements from large language models to multimodal frameworks, the cost of innovation at the application layer is diminishing, potentially catalyzing a rich array of AI service stores that could revolutionize how households engage with AI-powered super assistants and intelligent agents.

This potential has gradually manifested over the past two years, with the third quarter of this fiscal year serving as a prime example.

Recent foreign investments have also recognized Lenovo’s potential beyond its AI PCs and core computing business

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DBS Bank has raised Lenovo’s target price to HKD 18.4, forecasting profit growth of 46.6% and 45% in 2025 and 2026, respectively, primarily fueled by commercial PC replacement cycles enhanced by upgrading AI standards and the increased adoption of Copilot+ solutions in its service sector.

Goldman Sachs' report underscores Lenovo’s status as an early beneficiary of AI PCs, attributing this acknowledgement to its high brand reputation, exposure in commercial and high-end models, and its leading market position that attracts partnerships with major chipset vendorsThe firm’s upgraded target price reflects the anticipated advancements resulting from AI PCs and server innovations.

Deloitte has similarly adjusted Lenovo’s target price to HKD 14.3, citing the potential for its AI PC and server businesses to drive long-term growth, predicting profit growth rates that could exceed market expectations by 2025.

The logic behind international investment banks’ reevaluations of Lenovo focuses on three main points: first, the pricing power for edge AILenovo is the first worldwide to deploy DeepSeek on the edge, positioning itself to set the standard for AI PCs and seize ecological dominance.

Second, the scale effects of hybrid infrastructureLenovo’s Coordination between cloud service providers (CSP) and enterprise/SMB clients within its ISG business replicates the successful trajectory seen within the PC domain to foster cost efficiencies.

Third, there's a shift in valuation systems—from “hardware earnings multiples” (10-15x) to “tech service earnings multiples” (20-30x), with SSG’s high-profit margin tapping into advantages as potent catalysts.

This foreign investment perspective has also shed light on the industry and has prompted local analysts to revisit how they perceive Lenovo, possibly contributing to the rising stock price seen in recent times.

However, for the foreseeable future, the domestic market’s understanding of Lenovo remains largely confined to its identity as a “PC manufacturer.”

Local investors’ underestimation of Lenovo stems primarily from three cognitive biases

First is the rigid hardware label that has persistedPast analyses have predominantly scrutinized Lenovo’s PC shipment volumes, neglecting its technology-driven SSG (Solution Services Group) and ISG (Infrastructure Solutions Group) business segmentsNotably, the revenue from non-PC businesses accounted for 46% in the last quarter, affirming Lenovo’s transformation into a comprehensive AI service provider.

During the third quarter, Lenovo’s ISG business revenue surged nearly 60% year-over-year to CNY 28.3 billion, establishing a first mover advantage in AI server and liquid cooling solutions at a time of escalating computational needsThe SSG (Solution Services Group) saw its revenue grow by double digits to CNY 16.2 billion, marking record highs while maintaining a profit margin above 20%.

Secondly, the invisible nature of R&D investment has also contributed to this biasLenovo’s R&D expenditure ratio has risen to 4.2% in 2024, directed towards AI, edge computing, and related fieldsYet, the resultant technologies, such as their liquid cooling technology boasting a PUE value of 1.1062, have not been fully price-optimized despite being recognized as mainstream trends in AI data centers, as evidenced by adoption among firms like Nvidia, AMD, and Musk's xAI.

Thirdly, there’s a global risk premium related to market fluctuations and geopolitical tensions that magnify concerns regarding Lenovo’s overseas endeavorsFortunately, the company’s model of combining global resources with local delivery can effectively tackle geopolitical challengesYang Yuanqing clarified that Lenovo’s manufacturing capacity is predominantly based in China, supported by facilities in Japan, India, Brazil, Mexico, Hungary, and a future platform in Saudi Arabia, significantly bolstering supply chain resilience.

On January 8, 2025, Alat from Saudi Arabia’s Public Investment Fund (PIF) announced a three-year USD 2 billion zero-interest convertible bond investment in Lenovo, marking a strategic partnership unveiled in May 2024 that facilitates growth in the Middle East and African markets, further diversifying Lenovo's global manufacturing network.

The rise of DeepSeek is heralding a comprehensive narrative around AI in China and asset reassessment

Lenovo stands as a case that exemplifies the transformation within the Chinese technology ecosystem from "technological followership" to "standard setting."

Its investment in AI is not merely resultant of speculative enthusiasm; it is a deliberate strategy rooted in a comprehensive approach encompassing endpoints, edge, cloud, network, and intelligenceThe concept of Hybrid AI, through the tiered structure of public cloud models, enterprise private models, and personal models, creates an effective interface connecting foundational infrastructures with personal devices.

As the world’s first manufacturer producing AI Ready devices, Lenovo has redefined personal computing while utilizing its "Little Tian" AI agent to build the Tianxi ecosystem, housing over 1,000 AI applications across vertical sectors including education, healthcare, and legal services.

Lenovo’s approach to Hybrid AI and its integrated layout of "devices + models + services" may offer guidance for similar international firms, highlighting China's more holistic and adaptable approach toward AI commercialization.

Importantly, Lenovo is exploring the “manufacturing as a service” (MaaS) model alongside its supply chain integrations, translating its extensive manufacturing expertise into standard solutions that empower emerging firms, aiding them across the challenging gap from innovation in labs to mass production.

In addition to investments, Lenovo aims to bolster innovation by engaging in financial services, supply chain collaborations, and broader support initiatives, striving to uplift innovative enterprises, particularly specialized and innovative ones, while addressing supply chain gaps at both ends.

Nonetheless, it’s vital to recognize that despite Lenovo’s recent achievements in performance, stock price, and market capitalization, this aligns with a broader recovery from previous fluctuationsOver recent years, Lenovo has encountered various economic pressures like cyclical tendencies in the PC market, supply chain constraints, and the market's traditional perception of it as a “hardware manufacturer.” The current stock surge reflects a reassessment of Lenovo's hybrid AI strategy and its positioning in edge AI, yet it doesn’t necessarily confirm the beginning of a sustainable upward trend.

In the future, Lenovo must continuously navigate uncertainties in global PC demand, challenges in commercializing AI technologies, and the potential impacts of geopolitical tensions on its supply chain

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