Citigroup has released a research report raising its revenue forecasts for LENOVO GROUP (00992) for fiscal years 2027 to 2029 by 15%, 15%, and 18% respectively, to $107 billion, $124 billion, and $147 billion.

Adjusted diluted earnings per share forecasts have been increased by 55%, 37%, and 31% to 31.4 cents, 40 cents, and 49.7 cents respectively. The target price has been raised sharply by 61.3% from HK$31 to HK$50, with a reiterated "Buy" rating.

Where to begin

Lenovo's first-quarter results for the period ending June 30 exceeded the bank's expectations. The company's Infrastructure Solutions Group (ISG) saw robust demand, particularly from emerging cloud service providers (Neoclouds), along with better operating leverage and efficiency improvements. ISG's operating profit margin reached a record high of 9.1%.

Why just 10 ASX 200 shares?

The AI server order pipeline grew 157% quarter-over-quarter, which is a positive signal for future revenue upside. The bank believes Lenovo will benefit from improved average selling prices and product mix, as well as market share gains. Headwinds for the Intelligent Devices Group (IDG) in the second half of the fiscal year and fiscal 2027 are expected to be manageable.

Key factors behind the upgrade

The total addressable market (TAM) for the Solutions and Services Group (SSG) has been updated to $850 billion by fiscal year 2029/30. AI-driven TAM expansion is expected to provide better revenue and margin upside.