Lenovo Group's share price has retreated sharply from its September all-time high, raising the question of whether the pullback marks the start of a deeper decline or a potential entry point for investors. The stock has fallen for three consecutive weeks, reaching its lowest level since September 7, and is now in correction territory, down 16% from its 2024 peak.
The recent weakness is largely attributed to growing concerns about the sustainability of the artificial intelligence boom. Prominent investors, including billionaire Ray Dalio, have warned that the AI rally may not be durable. These worries are compounded by expectations of further interest rate hikes by the Federal Reserve, which has already raised rates to 4%, and a surge in bond yields to multi-decade highs.
Investors are also scrutinizing the cash burn at major AI companies. Estimates suggest OpenAI could burn through over $280 billion by 2030, and recent disclosures indicate its revenue growth has not met initial expectations. A potential bursting of the AI bubble would have significant repercussions for Lenovo and other firms that have benefited from the AI-driven demand surge.
This explains why other AI-related names have also pulled back. Memory chip makers such as Micron, SK Hynix, and Samsung Electronics have all dropped by double digits from their yearly highs. The sell-off has been broad-based across the AI supply chain.
Despite the market jitters, Lenovo's underlying business appears robust. In its latest quarterly report, the company posted a 43% year-over-year revenue increase to $26.9 billion, with AI-related revenue jumping 60% to $9.3 billion. This performance aligns with that of competitors like Dell and HP Enterprise.
Lenovo's Intelligent Device Group generated $17.1 billion in revenue, up 27% from a year earlier, with operating margins improving to 7.1%. The Infrastructure Solutions Group saw revenue surge 98% to $8.5 billion, driven by strong demand from hyperscalers and neocloud providers.
Management and analysts expect this growth trajectory to continue as data center spending remains elevated. This could help justify Lenovo's valuation, which is relatively modest compared to some peers. The stock trades at a trailing price-to-earnings ratio of 33 and a forward multiple of 26.
From a technical perspective, Lenovo's stock has fallen from a year-to-date high of $37.84 to around $31.76. The chart shows a double-top pattern with a neckline at $28.62, a level that marked the low in early September. A double-top is often seen as a bearish reversal signal, suggesting further downside could be possible.
However, the stock remains above its 50-day exponential moving average and an ascending trendline that has supported prices since July. If the decline continues, the next key support level could be the 50-day moving average at $27.45. Conversely, a rebound above the neckline could signal a resumption of the uptrend.
Investors are now weighing the strong fundamentals against the broader market's AI concerns. The outcome may depend on whether the AI-driven growth story remains intact and whether Lenovo can sustain its momentum in the coming quarters.
This article is for informational purposes only and does not constitute financial advice.
