Lenovo Group released its first-quarter results for fiscal 2026/27, with all three business groups achieving record quarterly highs. The AI-driven infrastructure business posted a significant expansion in profit margins, propelling the company's stock price to surge over 17% intraday, pushing its market cap beyond HK$420 billion.

The earnings report showed that Lenovo Group recorded first-quarter revenue of $26.943 billion, up 43% year-on-year, substantially exceeding market estimates of $22.42 billion. Adjusted net profit surged 176% year-on-year to $1.075 billion, breaching the $1 billion mark for the first time. The adjusted net profit margin reached 4%, nearly doubling from a year ago. The company also raised its full-year outlook, projecting revenue for the current fiscal year to surpass $100 billion, achieving its previously set "two-year goal of exceeding $100 billion in revenue" ahead of schedule.

The core highlights of the results centered on the infrastructure business. Lenovo Group's ISG (Infrastructure Solutions Group) posted first-quarter revenue of $8.5 billion, up 98% year-on-year, with an operating margin of 9.1%, improving 5.5 percentage points from the previous quarter. The AI server order backlog reached $54 billion, growing 157% quarter-on-quarter, equivalent to approximately RMB 360 billion. The company stated that AI-related revenue increased 60% year-on-year, accounting for 35% of total group revenue, indicating that its hybrid AI strategy has entered the value realization phase.

ISG margin jumps, AI server order backlog doubles quarterly

The performance of Lenovo Group's ISG business this quarter was the most closely watched aspect of the earnings report. The $8.5 billion in revenue, effectively doubling year-on-year, was underpinned by a dramatic turnaround in operating profit, which swung from a loss of $85.52 million in the same period last year to a substantial profit of $777 million. The operating margin improved to 9.1%, a year-on-year gain of 11.1 percentage points.

The primary driver of this leapfrog growth was accelerated demand. The company disclosed that its AI server project backlog grew 157% quarter-on-quarter to $54 billion, covering three customer segments: hyperscale cloud providers, AI cloud, and enterprise AI. Excluding the base effect from international GPU server sales in the Chinese market, AI server revenue recorded triple-digit year-on-year growth in international markets.

In terms of manufacturing, Lenovo Group's smart campus in North Carolina has been officially opened, further strengthening its "global resources, local delivery" capabilities in the Americas to capture local infrastructure demand from hyperscale cloud providers and enterprise customers.

IDG business shows resilience, PC market share extends lead for 10 consecutive quarters

Lenovo Group's IDG (Intelligent Devices Group) posted first-quarter revenue of $17.1 billion, up 27% year-on-year, with an operating margin stable at 7.1%, demonstrating strong profitability resilience amid component supply-demand imbalances and intensified market competition.

The PC business continued to strengthen its market dominance. According to IDC data, Lenovo Group's global PC market share reached 24.2% in the first quarter, up 0.5 percentage points year-on-year, extending its lead over the second-largest vendor for the tenth consecutive quarter. The AI PC global market share reached 25.1%, also a first-quarter record.

In smartphones, the Motorola brand achieved record first-quarter revenue. The premium product line, including the Razr, Signature, and Edge series, contributed 37% of smartphone revenue, an all-time high. The company stated that over the past two years, global device installations have achieved a compound annual growth rate of 12.4%, significantly outpacing the overall device market growth.

SSG margin hits new high, AI service revenue triples

Lenovo Group's SSG (Solutions and Services Group) reported first-quarter revenue of $2.9 billion, up 28% year-on-year, with operating profit reaching $697 million and an operating margin of 24.2%, both setting quarterly records.

Managed services and projects & solutions combined accounted for a record high of 62.4% of SSG's total revenue. The TruScale Infrastructure as a Service (IaaS) orders grew rapidly, primarily driven by the expansion of AI factories in AI cloud and enterprise customer segments. Citing data from Gartner and IDC, the company noted that AI-related opportunities have added over $200 billion to SSG's total addressable market for the current fiscal year.

In a landmark case, Lenovo Group, as the sole official technology partner for the 2026 FIFA World Cup, will use proprietary AI technologies like FIFA AI Pro to support all 104 matches, managing over 25,000 devices and reaching an audience of over 6 billion fans, further strengthening its brand influence in large-scale end-to-end AI solutions.

Reported net loss stems from non-cash warrant revaluation, not operational substance

Notably, Lenovo Group recorded a net loss attributable to equity holders of $609 million under IFRS in the quarter, a significant difference from the adjusted net profit. The company explained that the loss was primarily due to a non-cash fair value revaluation loss of $1.69 billion related to derivative financial liabilities from warrants. This item is directly linked to the rise in Lenovo Group's share price; the higher the stock price, the larger the book revaluation loss.

Company management noted that this non-cash item is expected to persist until the end of fiscal 2027/28 and does not reflect any substantive change in the group's operating performance. After excluding non-cash items such as the warrant revaluation and nominal interest on convertible bonds, the adjusted operating profit margin was 5.7%, and the adjusted net profit margin was 4.0%.

On the balance sheet side, as of the end of June 2026, Lenovo Group had total assets of $70.1 billion, with cash and bank deposits totaling $6.081 billion, an increase of approximately $1 billion from the end of the previous quarter. Due to the expansion of convertible bonds, net debt shifted from a net cash position of $242 million at the end of the previous quarter to a net debt of $179 million, with the loan-to-equity ratio rising to 0.77.

Full-year outlook and competitive landscape

Lenovo Group expects full-year revenue to exceed $100 billion, achieving its "two-year goal of exceeding $100 billion in revenue" ahead of schedule. The company stated it will continue to advance its hybrid AI strategy and enhance profitability across devices, infrastructure, solutions, and services.

Regionally, the Americas showed the most prominent year-on-year growth, with revenue up 58%. The Europe-Middle East-Africa market grew 53%, while the Chinese market increased 25%. Lenovo Group has maintained the top PC market position in the Europe-Middle East-Africa region for 17 consecutive quarters.

Analysts from the Guolian Minsheng Securities electronics team, including Xue Hongwei, Li Shaoqing, and Chou Fangjun, maintained a buy rating on Lenovo Group. They cited sufficient growth potential in the ISG business and resilience in the IDG business, with the Rubin GPU platform ramp-up in the second half of this year and next year as a potential catalyst, targeting a market cap of HK$700 billion.