Financial Performance - Lenovo's Q4 FY 2024 financial results exceeded sell-side analysts' expectations, driven by better-than-expected revenue growth and gross margin expansion [1][3] - The company's gross profit margin improved by +1.1 percentage points QoQ and +0.6 percentage points YoY to 17.6%, the highest quarterly gross margin in Lenovo's history [3] - Normalized net income attributable to shareholders was 164 million [5] - Revenue expanded by +9% YoY to 13,201 million by +5% [11] Segment Performance - ISG (Infrastructure Solutions Group) revenue grew by +15% YoY, driven by AI products such as AI servers, which began contributing positively to growth in 2H FY 2024 [2] - SSG (Solutions & Services Group) revenue increased by +10% YoY, with the rollout of AI services like AI Discover and AI Fast Start to enable customer AI adoption [2] - IDG (Intelligent Devices Group) revenue grew by +7% YoY, with the shipment of the first wave of AI PCs in the recent quarter [2] AI-Related Growth Opportunities - Lenovo's business segments benefited from AI tailwinds, contributing to a +5% top-line beat in Q4 FY 2024 [6] - The company is well-positioned to leverage the growing demand for AI PCs, with more AI PC offerings expected to ship in the coming quarters [7] - Third-party research projects significant growth in AI PCs and AI servers, with AI PC penetration expected to rise from 2% in 2024 to 65% by 2028 and AI server market share forecasted to grow from 11% to 20% by 2025 [7][8] Valuation and Market Position - Lenovo's current consensus FY 2025-2028 earnings CAGR is +18%, with a Price-to-Earnings Growth (PEG) metric of 0.72 times, indicating attractive valuation [15] - The company trades at a discount to peers, with a current P/E of 13 times compared to the peer average of 18 times [16] - Lenovo's shares are considered undervalued relative to peers and future earnings growth expectations, supporting a Buy rating [10][16]
Lenovo: Revisiting AI Growth Potential And Valuations (Rating Upgrade)