Lenovo Group stock has reversed sharply over the past few months, falling from HK$37.78 in September to the current H$21.78. The retreat has coincided with ongoing weakness among most companies in the artificial intelligence industry. So, is this drop a good buying opportunity for Lenovo shares?
Lenovo Group has fallen despite strong performance
The ongoing Lenovo Group retreat has coincided with the weakness of other similar companies. Dell Technologies, its closest competitor, has dropped by 23% from its highest point this year. HP Enterprise dropped from $73 to the current $56.6, while Super Micro Computer has fallen to $32.94.
The retreat has also coincided with that of other companies in the artificial intelligence industry, including popular names like Nvidia, Micron, and SanDisk. Investors are simply worried that the AI boom that fueled these companies’ growth is starting to fade. Ken Griffin and Ray Dalio have all sounded an alarm about the potential AI bubble.
Fundamentally, Lenovo Group’s business is doing well, with its revenue and profits accelerating. Its recent results showed that the company’s revenue soared by 43% in the June quarter to $26.9 billion, driven by its AI servers business. Its adjusted net income jumped by 176% to $1.075 billion. Its net profit soared to over $538 million.
Analysts and the management team expects that Lenovo’s growth will accelerate in the coming months as demand remains unprecedented. Most of this demand is coming from hyperscalers and neocloud companies.
Lenovo faces some risks ahead
Lenovo Group faces some major risks ahead. One of them is that its business will see a significant deceleration when the ongoing data center investments start slowing down. While this slowdown will not happen any time soon, history suggests that it will happen eventually.
Further, history shows that its servers business goes through boom and bust cycles. This is a situation where periods of booms are followed by inventory build up and revenue slowdown. Such a move will lead to a slowdown of its business.
Further, the stock is highly overvalued. Seeking Alpha data shows that the company has a forward price-to-earnings ratio of 45, much higher than its top competitors. Dell has a multiple of 17, while HP Enterprise has 14.8.
Lenovo Group stock technical analysis
Lenovo Group shares | Source: TradingView
On the charts, we see that the Lenovo Group share price has slumped in the past few months. This retreat started when it peaked at $37.78, the Ultimate Resistance of the Murrey Math Lines tool.
The stock has now slipped below the 50% Fibonacci Retracement level and the Major S/R pivot point of the Murrey Math Lines tool. It has also moved below the Point of Control of the fixed range volume profile.
Therefore, the stock may attempt to bounce back now that it has slipped to the 200-day moving average. If this happens, it will hit the Major S/R pivot point of $25 and then resume the downward trend.
This post Lenovo Group stock has slumped amid the AI bubble fears: buy the dip? may be modified as updates unfold
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