Lenovo Group (00992) shares surged more than 7% on Tuesday, leading blue-chip gains in Hong Kong. The stock was trading 7.64% higher at HK$23.4 with turnover reaching HK$1.518 billion.

Analyst upgrades are driving the positive sentiment. JPMorgan raised its investment rating on Lenovo Group from "neutral" to "overweight" and lifted its price target sharply from HK$20 to HK$30, citing a significant improvement in server business profitability and better-than-expected price elasticity in the Intelligent Devices Group (IDG) segment. The investment bank expects ISG profit margins to expand further in coming quarters, supported by operational leverage. JPMorgan estimates that AI-related revenue already accounted for over 30% of ISG revenue in the first fiscal quarter ending June, and projects full-year ISG revenue to grow approximately 60% year-over-year. The bank also forecasts ISG operating margins will improve from 0.4% in fiscal 2026 to 5% in fiscal 2027.

CLSA also anticipates a strong breakthrough for Lenovo Group's server business margins and revenue in the first quarter of fiscal 2027. The brokerage expects server business margins to expand from 3.6% in the quarter ending March to 5.2% in the quarter ending June, with further improvements ahead. The strong AI server business is driving Lenovo Group's earnings and business performance into the next phase, and CLSA believes there is room for upward earnings revisions, positioning the company for re-rating potential.