Nvidia showed double quarterly results. The market value rose 9.3% to 222.45 billion US dollars and more than 1.6 trillion yuan in one trading day, once again igniting the “artificial intelligence” topic.

Demand for the “artificial intelligence” market is penetrating at an accelerated pace. At the Nvidia investor conference call, senior company executives said that the next industrial revolution has begun, artificial intelligence (AI) will bring obvious productivity growth to “almost all walks of life”, and the company's Blackwell chip production capacity is operating at full capacity, and both H200 and Blackwell chips are in short supply. With the launch of the next generation of Blackwell architecture chips, the company is preparing for the “next wave of growth.”

In fact, not only Nvidia, but Lenovo Group (00992), as a leader in the implementation of AI terminal hardware and a pioneer at the cutting edge of the times, also ate the first piece of cake in the midst of this wave of demand.

The Zhitong Finance App learned that on May 23, Lenovo Group released Q4 and full-year financial reports for the 2024 fiscal year. All Q4 indicators exceeded expectations, achieving revenue of US$13.833 billion, up 9% year on year, and shareholders' net profit of US$248 million, doubling to 118% year on year; achieved annual revenue of US$56.864 billion and net shareholders' profit of US$1,011 million. Additionally, the company plans to pay a final dividend of HK30 cents per share.

AI is reshaping Lenovo Group's performance structure and product iteration is accelerating. The company's AI PC is on the cusp of demand. In Q4, its PC business expanded its global advantage with a growth rate of nearly 6 percentage points above the market average and maintained industry-leading profitability, ranking first in four of the world's five major markets. The company has fully embraced artificial intelligence and launched the “Golden Decade of New AI”.

Driven by AI, profits doubled

Looking through Lenovo Group's Q4 earnings report, the most prominent feature is that quarterly revenue continued to grow and profitability increased dramatically. On a quarterly basis, performance declined in the first two quarters of fiscal year 2024 due to a slowdown in demand in the PC industry, but there was a marked improvement after Q3. The company's PC shipments bucked the trend, driving Q3 and Q4 revenue recovery growth of 3% and 9%, respectively. Quarterly profit improved significantly, and Q4 net profit increased by 118%.

The three major businesses of IDG, ISG, and SSG all achieved quarterly growth. Q4 achieved revenue of US$10.463 billion, US$2,533 billion and US$1.82 billion, respectively, with year-on-year increases of 6.8%, 15.14% and 10.37%, respectively, and revenue contributions of 70.62%, 17.08% and 12.28%, respectively. In terms of profit, SSG's operating profit was US$773 million, up 17.12% year on year, and profit margin increased to 7.39%. SSG maintained a high profit level, operating profit of US$389 million, up 20% year on year, and profit margin reached 21.37%. Throughout the 2024 fiscal year, IDG and IDG showed resilience. SSG maintained double-digit growth, revenue and operating profit increased by 12.14% and 11%, respectively, and profit margins of 20.7%.

Lenovo Group has fully deployed hybrid AI, promoted service-led transformation and improved operational efficiency, increased product development efforts, and implemented AI+ software and hardware products to meet market demand. The results in the first quarter of 2024 were remarkable. On the one hand, revenue continued to grow. On the one hand, revenue continued to grow, and on the other hand, gross margin continued to rise under product drive. The annual gross margin reached a record high, and achieved growth for the third year in a row. Furthermore, the company's R&D expenses as a share of revenue have risen for the third year in a row, and high R&D investment has ensured that its product strength has always stood at the cutting edge of the industry's technical level.

With a large left-handed model and a right-handed smart device, the company is increasing the penetration of AI products in the business. For example, IDG was the first to launch an AI PC with a landing application in China, and received market approval and quick purchase. According to IDC data, in the first quarter of 2024, global PC shipments were 28.7%. However, Lenovo's shipments bucked the trend and increased by 7.8%, ahead of other peers, and its market share increased to 23%, increasing the gap compared to popular Dell, which is 2.9 percentage points and 7.5 percentage points higher, respectively.

At ISG, revenue from project development issues was affected in fiscal year 2024, but AI progressed smoothly. More hybrid AI solutions were applied at the edge and cloud, and consolidated revenue from storage, services, and software reached a record high throughout the year. Among them, the storage business recorded growth for the seventh year in a row, making it one of the world's top three storage and data management providers. At SSG, the product was fully upgraded to Portfolio 2.0 in the hybrid artificial intelligence era, and AI-native solution services were restructured and upgraded with the “One Engine, Three Arrows” strategy, and the overall growth of the three major businesses and products were segmented.

In fact, comparing the quarterly performance of Lenovo and Nvidia, it is easy to see that AI chips and AI hardware are entering a period of explosion. Nvidia Blackwell chip production capacity is operating at full capacity, and supply is in short supply. This is mainly due to demand transmission for AI hardware. From upstream to downstream terminal implementation, AI is changing the supply-side product structure. As the global leader in terminal launches, Lenovo Group seems to have been the biggest beneficiary of this wave of AI feasts.

Control the supply chain and have AI pricing power

Lenovo Group's biggest advantage in the AI field is long-term and stable partnerships and supply relationships with international chip giants, including Nvidia, Qualcomm, and Microsoft. This not only allows Lenovo to share the most cutting-edge upstream technology, but also obtain a faster time to launch iterative products than its peers, and gain early access to the market. Meanwhile, joining forces with international giants, Lenovo's R&D and product iteration cycle has accelerated, and promoted the advent of the AI era.

Strategically, the company works closely with international chip giants to jointly launch a series of industry-leading technology products and leading solutions to promote the development of computing, covering smart hardware fields from data centers to workstations, personal computers, and handheld gaming devices. On the product side, for example, the company collaborated with Microsoft and Qualcomm to build a next-generation AI PC. On May 21, the company released the first next-generation Copilot+ PC equipped with Qualcomm Snapdragon X Elite - Lenovo Yoga Slim 7x and Lenovo ThinkPad T14s Gen 6 products.

In addition to AI PC products, it has also fully opened up AI cooperation channels in other fields. For example, the company released large model middleware for smart driving platforms based on NVIDIA's AI chip technology; launched a new hybrid AI solution with NVIDIA. The Lenovo ThinkSystem AI server is equipped with an NVIDIA B200 Tensor Core GPU, which will power the new era of generative AI. In addition, as the leading AI terminal hardware leader, Lenovo Group also supplies chip giants. For example, it began shipping L40S artificial intelligence servers to Microsoft in December of last year.

Therefore, it can be observed that, whether in the field of AI PCs or AI servers, international chip giants want to work hard with Lenovo. These are mainly: first, long-term cooperation with Lenovo to jointly develop and accelerate terminal hardware iteration; second, Lenovo has a scale advantage, global market distribution, and high brand awareness; third, based on recognition of Lenovo Group, its leading position in PC is unshakable, making it the first choice for AI terminals to land.

As far as Lenovo is concerned, it has a firm grasp of upstream technology resources, and is driven by R&D, continuously iterating technology to provide the market with more advanced AI products, while also nurturing growth in performance. Compared to Dell and HP, the company's performance is stronger, and its finances are more stable. After fully deploying AI, for example, PC products clearly widened the gap with peers. In Q1 this year, the company's PC market share was far ahead of its peers.

Valuations are linked, and increases can be expected

The Zhitong Finance App observed that Lenovo Group and international chip giants all have the same market capitalization trend, and they have all broken out of the bullish trend. Using 2017 as the base, as of May 23, the market capitalization of Lenovo Group, Qualcomm, and Microsoft increased by 247.6%, 274.1%, and 435.8%, respectively. Nvidia broke out this year, with an increase of more than 20 times. Compared with its Dell peers, Lenovo ranked second in terms of growth, with HP lagging behind only 89.2%.

However, there will be differences in valuation between the Lenovo Group in the Hong Kong stock market and other tech giants in the US stock market. Lenovo's PE (TTM) is 17 times, but most of the PE (TTM) of the target companies (US stocks) is 30-60 times, such as Microsoft, PE (TTM) is 37 times. In a horizontal comparison, Lenovo's valuation is not high, there is still plenty of room for improvement, and from a vertical perspective, Lenovo has performance-driven expectations.

Performance is the basic basis for valuation. Lenovo Group's AI+ software and hardware will comprehensively lay out the golden decade of the future AI era. The three major businesses will cover personal intelligence and enterprise intelligence, and continue to invest in R&D to create cutting-edge terminal products in the industry to fully meet the needs of B-side and C-side AI products. With the initial release of AI products in Q4 of FY2024, AI PCs drove PC shipments bucked the trend. Future performance expectations are clear, which may drive higher valuations.

Overall, Lenovo Group's Q4 performance was strong. Revenue from the three major businesses increased across the board, profits doubled, and AI products initially released performance. In fact, as seen from the performance of upstream chips (Nvidia) and downstream terminal hardware (Lenovo), the AI market penetration rate is increasing at an accelerated pace, and Lenovo Group has fully deployed AI products and cooperated deeply with chip giants to jointly develop this trillion-dollar AI market cake and lead the next decade.