Shenwan Hongyuan released a research report maintaining a "Buy" rating on Lenovo Group (00992), citing better-than-expected performance with revenue and adjusted net profit rising 14.58% and 25.18% YoY, respectively. Growth was primarily driven by accelerated adoption of AI PCs (accounting for 33% of global shipments) and strong AI server business performance (revenue up 23.65% YoY). The firm expects the AI-driven momentum to sustain high growth.

**Key Highlights from Shenwan Hongyuan:**

**Performance Overview** Lenovo reported its FY25/26Q2 results, exceeding expectations. Revenue reached $20.45 billion, up 14.58% YoY, while adjusted net profit rose 25.18% YoY to $512 million. Due to significant impact from warrant fair value adjustments, adjusted net profit was the focus. Overall, revenue slightly surpassed expectations, while net profit significantly outperformed.

**IDG (Intelligent Devices Group) Business** The PC segment delivered strong results, with AI PC adoption accelerating. IDG revenue grew 11.79% YoY to $15.11 billion. PC revenue, estimated at $11.1 billion, surged 17.58% YoY, far outpacing IDC's reported 10.32% global PC shipment growth in 25Q3. AI PCs accounted for 33% of Lenovo’s global PC shipments, while domestic AI PC penetration reached 30% of notebook shipments, up 3 ppts QoQ. The PC market remains robust, with Lenovo maintaining industry leadership.

**ISG (Infrastructure Solutions Group) Business** AI servers posted double-digit growth, with sustained momentum expected. ISG revenue climbed 23.65% YoY to $4.09 billion. AI server revenue grew at a high double-digit rate, supported by solid order backlogs. Revenue from Neptune liquid cooling technology soared 154% YoY. With ongoing AI server transformation and benefits from economies of scale and global supply chain integration, ISG is expected to turn profitable.

**Margin Improvement & Supply Chain Resilience** Gross margin edged up 0.66 ppts QoQ to 15.39%, reflecting progress in AI server transformation. Lenovo’s established supply chain and bulk purchasing power position it well to mitigate cost pressures from memory price hikes.

**Earnings Forecast** Shenwan Hongyuan maintains its earnings projections, estimating FY25/26-FY27/28 revenue at $79.49 billion, $91.55 billion, and $105.24 billion, with net profit at $1.67 billion, $2.03 billion, and $2.43 billion. The "Buy" rating is upheld based on Lenovo’s PC market leadership, AI PC advancements, and strong AI server growth amid AI trends.

**Risks** Potential downside risks include weaker-than-expected PC demand, delays in AI server R&D/shipments, and macroeconomic volatility such as tariff issues.