LENOVO GROUP Chairman and CEO Yang Yuanqing reported on August 13 that the company posted its first-quarter results for the fiscal year 2026/27. The market reacted immediately, with the stock surging over 22% intraday to above 35 Hong Kong dollars, pushing the total market capitalization to a historic high of 440 billion Hong Kong dollars.

Just a quarter ago, at the end of April, LENOVO GROUP shares were trading around 11.68 Hong Kong dollars, with a market cap of just over 140 billion Hong Kong dollars. In three months, the market value nearly quadrupled, with year-to-date gains approaching threefold. This revaluation by the capital markets raises a key question: What is LENOVO GROUP now making its money from?

For a long time, LENOVO GROUP was perceived externally as a consumer electronics brand, covering products like PCs, phones, and tablets. Its valuation always carried a hardware cycle discount, corresponding to its Intelligent Devices Group (IDG). As artificial intelligence (AI) technology integrates with the business, two other core segments have seen revenue surge: the Infrastructure Solutions Group (ISG), which includes servers, storage, and AI computing power, and the Solutions & Services Group (SSG), tied to maintenance, solutions, and IT services.

Focus on the three core business segments

Consumer electronics, infrastructure, and solutions—all three segments not only hit their respective historical highs this quarter but also integrated AI into their operations, converting it into a growth engine. According to LENOVO GROUP data, for the three months ending June 30, the company achieved revenue of $26.943 billion (approximately 183.4 billion RMB), up 43.1% year-on-year, setting a single-quarter record. Adjusted net profit was $1.075 billion (approximately 7.3 billion RMB), up 176% year-on-year, breaking the $1 billion mark for the first time, with the adjusted net profit margin rising to 4.0%. Gross margin was 16.5%, up 1.8 percentage points from the same period last year.

By business segment, the Intelligent Devices Group remains the revenue foundation, contributing $17.1 billion in revenue this quarter, up 27% year-on-year. Notably, this 27% growth occurred against a backdrop of a slightly weaker overall PC market and surging component prices, particularly memory. According to IDC data, after nine consecutive quarters of growth, global PC shipments transitioned to a 4.9% year-on-year decline in the second quarter of 2026, with ongoing memory chip shortages and rising costs. In response, LENOVO GROUP emphasizes its long-established "supply chain resilience." In the Gartner Global Supply Chain rankings, LENOVO GROUP ranks among the top five. Additionally, over the past few quarters, long-term agreements with key upstream component suppliers have locked in capacity, ensuring stable delivery during a period of shortages and price increases. A source close to LENOVO GROUP indicated that the supply chain is a key growth driver, noting long-term partnerships with various manufacturers while competitors are struggling to deliver.

Furthermore, according to LENOVO GROUP data, its global PC market share reached 24.2%, up 0.5 percentage points year-on-year, expanding its lead over the second-place manufacturer for the tenth consecutive quarter, with the gap now widening to 5.3 percentage points. Compared to the Intelligent Devices Group, the segment truly exciting the market is the second line: the Infrastructure Solutions Group. Based on the financial report, the Infrastructure Solutions Group generated $8.5 billion in revenue for the quarter, up 98% year-on-year, nearly doubling. Its operating profit margin improved from a loss in the same period last year to 9.1%, with operating profit reaching $777 million, a quarterly record.

AI servers are the main driver of the infrastructure business

Within the Infrastructure Solutions Group, AI servers are the absolute star. The financial report disclosed that LENOVO GROUP's AI server order backlog reached $54 billion, up 157% quarter-on-quarter, covering hyperscale cloud service providers, AI clouds, and enterprise AI clients. Public data shows that Silicon Valley giants are still expanding their AI capital expenditures, which are expected to exceed $850 billion this year and could reach $1.4 trillion by 2027. These capital expenditures present opportunities for conversion into orders for LENOVO GROUP's Infrastructure Solutions Group. From this perspective, over the next 2-3 quarters, if the Infrastructure Solutions Group maintains the same sequential growth rate, it could surpass the Intelligent Devices Group to become the new revenue foundation for the entire group.

Additionally, the financial report revealed a key detail: excluding the impact of revenue from selling international GPU servers in the China region in the same period last year, AI server revenue in international markets achieved triple-digit year-on-year growth. The reason for excluding "revenue from selling international GPU servers in the China region" is that this business has "gone to zero"—the China region no longer sells overseas GPU servers this quarter. Therefore, the base period last year includes revenue that will not be present this year; without this adjustment, the year-on-year growth of the Infrastructure Solutions Group would be distorted. From this perspective, LENOVO GROUP's AI server orders primarily come from overseas clients, and the triple-digit growth aligns with the continued expansion of capital expenditures by overseas hyperscale cloud providers.

The third revenue line is the solutions and services business

The third line contributing to LENOVO GROUP's revenue is the Solutions & Services Group: this quarter, it contributed $2.9 billion in revenue, up 28% year-on-year, with an operating profit margin of 24.2%. While the revenue scale of the Solutions & Services Group is smaller than the other two segments, it has sustained growth momentum and features high margins. In contrast, this segment's role is to gradually expand high-margin, recurring revenue outside of hardware, thereby improving the overall group's gross margin. The combined revenue of $26.943 billion from the three business lines is the key catalyst for LENOVO GROUP's market cap surge of 300 billion Hong Kong dollars over the past quarter. The PC business relies on the supply chain and long-term agreements to defend market share and grow against the trend, the AI server business leverages the order backlog and international market expansion to achieve nearly double-digit growth, and the services business provides margin support.

The common thread running through these three business lines is AI. This is why, since the previous quarter, some analysts have argued that AI has become a new growth engine for LENOVO GROUP, a trend reflected in the financial data. In the first fiscal quarter, LENOVO GROUP's AI-related revenue grew 60% year-on-year to 63.4 billion RMB, accounting for 35% of the group's total revenue. Research and development investment also saw around 30% growth year-on-year. It could be said that three months ago, the market might have still been pricing LENOVO GROUP using a PC manufacturer valuation model. Now, the pricing framework is focusing on the backlog of AI server orders and the profitability expectations of the infrastructure business, with the key being the conversion of the $54 billion AI server order backlog disclosed in the financial report into revenue.