Lenovo surpasses profit expectations as AI demand fuels PC market rebound

Lenovo Group Ltd. posted better-than-expected quarterly profit, reinforcing hopes for a gradual recovery of the computing industry on the back of global AI spending.

Net income rose 38 per cent to $243 million in the three months ended June, Lenovo said in a filing Thursday. That compares with an average estimate of $231 million. Revenue rose 20 per cent to $15.4 billion.

Results mirror how growing demand for servers essential in the development of artificial intelligence is lifting the computing hardware market off its post-Covid slump. Big tech companies, from Amazon.com Inc. to Google and Baidu Inc., are raising spending on data centres at a rapid clip, preparing for the envisioned boom in AI services.

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Lenovo further increased its lead over HP Inc. and Dell Technologies Inc., with 14.7 million PCs shipped in the June quarter, according to research firm IDC. However, the Chinese firm's stock has trailed its rivals this year in part because of worries over the outlook for the world's No. 2 economy and its exposure to geopolitical tensions.

It's a bet by Chief Executive Officer Yang Yuanqing that AI-powered devices will help drive Lenovo's global business in the coming years, even though that market remains untested.

Next year, growth in the global PC market will further accelerate to between 5 per cent and 10 per cent, "with the new refresh cycle driven by both AI-PC as well as Windows 11 replacement," said Yang in an interview with Bloomberg Thursday.

Geopolitical risks are far from absent for the 40-year-old company and include possible new PC tariffs or chip-export restrictions by US or European regulators. The Biden administration has already slapped a series of curbs on exports to China of advanced chipmaking technologies and processors, including Nvidia Corp.'s most capable AI-training chips. Lenovo is by far the top seller of servers in the country.

Some of Nvidia's GPUs, which are in hot demand for training AI models, remain constrained, "but overall the situation is getting better," Yang said.

Lenovo shares fell by as much as 2.9 per cent in Hong Kong in afternoon trading after the company released its financial results before paring back some of those losses.