Lenovo Q1 FY 2025/26: Why Lenovo’s AI Strategy is the Real Story

The headline numbers for Lenovo's Q1 FY 2025/26 are certainly impressive. A 22% jump in revenue and a similar increase in non-HKFRS net income suggests a company firing on all cylinders. But to focus on the top and bottom lines alone is to miss the more complex and, frankly, more interesting story here. This isn't just a simple rebound; it's a strategic shift that is beginning to pay dividends.  

The most surprising takeaway is the sheer strength of the Intelligent Devices Group (IDG), particularly the PC business. We've been hearing for a while that the PC market is stabilizing, but Lenovo’s performance is something else entirely. Delivering a 19% year-on-year revenue increase is exceptional and the fastest growth rate in 15 consecutive quarters. An all-time high market share of 24.6% is no accident. This indicates that their core business is not only surviving but thriving. This strength seems to be tied directly to their embrace of AI. The company reported that AI PCs now make up more than 30% of their total PC shipments, and they claim a 31% market share in the global Windows AI PC segment. This is a powerful signal. It suggests that the promise of AI PCs is not just marketing hype; it’s a tangible driver of sales, giving customers a real reason to upgrade their hardware.

We see that the market for AI PCs is set for a period of rapid growth over the next 12 months, driven by a convergence of factors. The impending end-of-life for Windows 10 in October 2025 is creating a major commercial refresh cycle, with many businesses opting to upgrade to new hardware with AI capabilities as a means of future-proofing their IT infrastructure. This transition is further fueled by the increasing integration of Neural Processing Units (NPUs) into laptops and desktops by major chip manufacturers like Intel, AMD, and Qualcomm, which allows for local processing of AI tasks, enhancing performance, privacy, and security.

While consumer adoption is also growing, the enterprise segment is expected to be the primary driver of this market expansion, with projections suggesting that AI PCs will constitute a substantial portion of all PC shipments by the end of 2026. The sharpening of compelling applications and applications can help demonstrate the value of these new devices to end-users as the AI PC ecosystem adjusts to macroeconomic and tariff-related development in H2 2025.

Beyond PCs, the other business groups are equally compelling. The Infrastructure Solutions Group (ISG) grew revenue by 36% year-on-year, with a particular highlight being the AI infrastructure business, which more than doubled its revenue. This indicates a strong position in the high-growth AI server market. The company’s focus on Neptune liquid cooling technology for data centers is a smart move, positioning them to serve the demanding needs of AI workloads.

We find that the market prospects for AI infrastructure are exceptionally strong, driven by the explosive growth of AI and its increasing adoption across various industries. This expansion is fueled by the need for high-performance computing to handle complex AI workloads, particularly for training and deploying large language models, generative AI applications and emerging agentic AI capabilities. The demand is creating a massive market for cloud-based and hybrid solutions that offer scalability and flexibility. While North America currently leads the market, the Asia-Pacific region is expected to see the fastest growth, propelled by significant investments and national AI strategies. This growth includes the need for a more robust and sustainable energy infrastructure to power the increasingly energy-intensive data centers, as well as addressing concerns around data privacy and security.

However, the real star of the show might be the Solutions and Services Group (SSG). This division delivered its 17th consecutive quarter of year-on-year revenue growth, up 20%, and achieved a more than 22% operating margin. It's becoming the group's key profit engine. This is exactly what a mature technology company should be doing: leveraging its hardware base to create higher-margin, recurring revenue streams. The growth in "as-a-Service" offerings like TruScale is particularly encouraging, showing a successful transition to a more service-oriented model.

From our viewpoint, Lenovo TruScale is poised for significant growth over the next 12 months, primarily due to its alignment with key market demands and its flexible, everything-as-a-service model. The rising need for organizations to adopt AI-ready infrastructure, while simultaneously managing complex IT environments and controlling costs, makes TruScale a compelling solution. By offering a pay-as-you-go model for everything from devices to high-performance computing, TruScale enables organizations to avoid large upfront capital expenditures and scale their technology based on actual usage, which is particularly attractive for businesses navigating economic uncertainty.

Furthermore, its emphasis on sustainability and its ability to provide on-premises security and control with the flexibility of a cloud-like experience directly address the growing concerns of CIOs and CFOs. With a broad portfolio, a single contract framework, and dedicated managed services, Lenovo TruScale simplifies IT management and frees up internal teams to focus on strategic initiatives and improving business outcomes, solidifying its position to capture a larger share of the expanding "as-a-service" market.