Lenovo Group’s share price has lost momentum since reaching its all-time high in September. The stock has fallen for three consecutive weeks to its lowest level since September 7, and it has moved into a correction after dropping 16% from this year’s peak. So, will the decline continue, or is this a good buy-the-dip opportunity?
Why Lenovo Group stock has dropped
Lenovo Group is a top company that makes various products, including laptops, tablets, workstations, servers, storage, and networking solutions. It has a big market share in each of these areas.
Lenovo stock has dropped in the past few weeks because of the rising concerns about the artificial intelligence industry. Some analysts, including billionaire Ray Dalio, have warned that the ongoing artificial intelligence boom will not be sustainable.
These investors warn that the AI bubble may burst as interest rates continue rising. The Federal Reserve has already hiked interest rates to 4%, and analysts expect the process to continue later this year. Bond yields have jumped to the highest level in over two decades.
Investors are also worried about the cash burn by some of the biggest companies in the AI industry. The estimate is that OpenAI will burn over $280 billion through 2030. Recent disclosures showed that its revenue growth was not as fast as initially expected.
The bursting of the AI bubble will have a big impact on Lenovo and other companies that have benefited from the boom. This explains why other top firms in the AI space have pulled back. For example, memory names like Micron, SK Hynix, and Samsung Electronics have dropped by double digits from their peak this year.
Lenovo’s business is thriving
Despite all this, there are signs that Lenovo’s business is firing on all cylinders this year. Its last earnings report showed that its revenue jumped by 43% in the first quarter to $26.9 billion, with its AI-related revenue rising by 60% to $9.3 billion. This growth was in line with what its top competitors like Dell and HP Enterprise reported.
Lenovo’s Intelligent Device Group made $17.1 billion in revenue in the first quarter, up by 27% from a year earlier, with its operating margin rising to 7.1%. Its infrastructure group’s revenue rose by 98% to $8.5 billion.
Lenovo and analysts expect that this growth will continue as hyperscalers and neoclouds continue their spending spree. This growth may help to justify its valuation, which is fairly modest. It has a trailing P/E ratio of 33 and a forward multiple of 26.
Lenovo Group share price technical analysis
Lenovo stock chart | Source: TradingView
On the charts, we see that Lenovo Group stock pulled back to $31.76 from the year-to-date high of $37.84. This retreat has mirrored the performance of other top companies in the industry like HP and Dell.
The stock formed a double-top-like pattern at $36 and a neckline at $28.62, its lowest level on September 8 this year. A double-top is one of the most common bearish reversal signs in technical analysis.
It also remains much higher than the 50-day Exponential Moving Average (EMA) and the ascending trendline that connects the lowest levels in July. Therefore, there is a risk that the stock will continue falling in the coming weeks or months. If this happens, it may drop towards the 50-day moving average at $27.45.
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