Zhongtai Securities has released a research report initiating coverage on LENOVO GROUP (00992) with a "Buy" rating. The firm projects the company's revenue for FY26/27, FY27/28, and FY28/29 to reach $100.71 billion, $122.96 billion, and $146.97 billion respectively, representing year-over-year growth of 21.2%, 22.1%, and 19.5%. Adjusted net profit attributable to shareholders is expected to hit $3.25 billion, $4.16 billion, and $5.33 billion over the same periods, marking increases of 58.8%, 28.0%, and 27.9% year-over-year. This translates to forward P/E ratios of 13.7x, 10.7x, and 8.3x for the respective fiscal years. The analyst believes that as the PC leader, Lenovo's core business shows operational resilience. Simultaneously, its ISG business is expected to see a rising share and revenue contribution from AI servers, with profits entering an accelerated realization phase, justifying the initial "Buy" rating.
The report outlines several key points. Founded in 1984, LENOVO GROUP has evolved from a foreign brand agent into a global PC leader. Since 2013, it has held the top spot in global PC shipments. Through strategic acquisitions, it has expanded into smartphones, servers, and other areas. Driven by a hybrid AI strategy since 2019, it has built a comprehensive AI ecosystem, transforming into a full-stack AI provider covering "devices, infrastructure, and services & solutions." In FY25/26, the company generated revenue of $83.075 billion, with an adjusted net profit of $2.049 billion. The compound annual growth rates (CAGR) for revenue and profit from FY23/24 to FY25/26 were 20.9% and 40.5% respectively. Looking ahead, the IDG and SSG segments are expected to grow steadily, while the ISG segment, benefiting from the continued ramp-up of AI servers and improving margins, is poised to accelerate profit delivery. The company's growth trajectory appears clear.
ISG: Strong AI Computing Demand, Profits Poised for Accelerated Release
AI computing demand remains robust, with the global AI server market projected to reach $1,239.13 billion by 2030, a CAGR of 40.6% from 2024 to 2030. LENOVO GROUP's ISG segment includes servers, storage, and liquid cooling solutions, serving top global CSPs and enterprise clients. In 2024, the strategic focus of the ISG business shifted towards AI servers, deepening its partnership with Nvidia's ecosystem and enhancing its infrastructure capabilities. From FY20/21 to FY25/26, ISG revenue grew from $5.5 billion to $19.188 billion, a CAGR of 23.2%, with its revenue share rising from 9.9% to 21.8%. Order backlog for AI at the end of FY25/26 Q4 was valued at $21 billion, with recent AI server orders continuing to increase. In terms of profitability, the ISG operating margin turned positive in Q4 FY25/26 to 3.6%. Scale effects and product mix optimization are expected to drive further margin improvement. As existing orders move into mass production and operating margins rise, ISG profit growth is set to accelerate.
IDG: Resilience Amid Memory Headwinds, Comprehensive Edge AI Ecosystem
Since the second half of 2025, rapid memory cost increases have somewhat pressured demand for PCs and other consumer electronics globally. Trendforce predicts a significant narrowing of memory price increases in Q3 2026. As pressure from consumer-grade memory shortages eases, demand is expected to stabilize and recover. In the medium to long term, innovation remains the key driver of demand. While AIPC hardware upgrades have been leading over the past two years, agent applications are now emerging. AIPC adoption is expected to fuel a genuine replacement cycle, driven by both hardware advancements and expanding application scenarios. LENOVO GROUP's IDG business, its core traditional segment, includes PCs, smartphones, and other smart devices, with PCs accounting for the largest share. In FY25/26, IDG revenue was $58.935 billion, up 16.6% year-over-year, with an operating margin of roughly 7.2%, flat year-over-year. As the global PC leader, the company benefits from operational efficiency, innovation, and a resilient supply chain, giving it an edge during the headwind of rising memory prices. Over the long term, rising AIPC penetration is expected to drive up both ASP and margins. Additionally, other devices like smartphones are improving, collectively building the AI edge ecosystem and unlocking growth potential.
SSG: TruScale and Hybrid AI Synergy as Core Growth Engine
The SSG segment encompasses support services, managed services, and project & solution services, serving as a major profit center. In FY25/26, its profit contribution (34.3%) far exceeded its revenue contribution (11.4%). The TruScale "Everything as a Service" (XaaS) model is shifting customers from traditional fragmented procurement and phased implementation to a subscription-based, pay-as-you-go model. TruScale has become the core growth engine for SSG. In Q4 FY25/26, the TruScale business maintained high growth, with DaaS revenue up 26.9% year-over-year and IaaS revenue up 42.5% year-over-year. The hybrid AI advantage set, which integrates AI Factory, AI Services, and AI Library, leverages the TruScale platform to offer enterprises full-stack AI solutions. This approach delivers higher efficiency at a lower cost, opening up new space for SSG to expand from traditional IT operations to full-stack AI deployment and operational services.
Risk Factors
Risks include weaker-than-expected downstream demand, tariff and trade policy risks, foreign exchange fluctuation risks, the risk of information not being updated in a timely manner in the report, and the risk of inaccurate third-party data or deviations in market size estimates.
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