Lenovo Group spent last year in high spirits, influenced by a sense of unshakeable optimism about the prospects for artificial intelligence, but 2024 began for the company in a negative scenario, showing more reasons for pessimism against the background of geopolitical tensions, including in the context of a marked deterioration in relations between the United States and China, and weak consumer demand.
The shares of the mentioned brand have faced what can be called the pressure of reality. The negative political conjuncture affecting the situation in the markets and the state of affairs in the technology industry, and the lack of rapid recovery of activity in the consumer environment form the configuration of the external ambient, which is unfavorable for the prospects of the dynamic of indicators of the value of Lenovo securities.
The shares of the computer giant have fallen in price by more than 12% this week. In total, the losses amounted to $ 1.8 billion. This week turned out to be the worst for the company since October 2021. Currently, investors are focusing their efforts on selling Chinese firms’ securities, which, in the context of deteriorating relations between Beijing and Washington, may find themselves in the area of the effect of American sanctions. This desire to prevent potential risks within the framework of preventive measures is justified since the situation in the geopolitical area does not show signs of improvement in the foreseeable future.
Lenovo is based in Beijing. The current position of this company, which is a full-fledged player in the global technology market, can be described as an example of a victim of historical circumstances. Lenovo says that United States agencies are the main constituent elements of its customer base. At the same time, the Chinese government is a significant indirect shareholder of the company. In the context of this specificity, Lenovo was symbolically caught between two fires.
The tech giant’s optimism last year was largely justified. In this case, the company did not immerse itself in dreams or preliminary assumptions about potential future scenarios. The firm’s optimistic attitude was based on specific performance indicators. In 2023, the share price of the computer giant increased by 70%. To a large extent, this dynamic was driven by positive expectations associated with the development and large-scale implementation of artificial intelligence. However, since January 1, 2024, the corresponding indicator has fallen by more than 25%.
China-related stocks have faced difficulties amid a difficult economic situation. The negative state of affairs worsened even more after the United States bill was published last week, which provides for restricting the access of some biotech companies from the mentioned Asian country to federal contracts. The news of Washington’s intention has introduced another pessimistic element into the external environment, which has become an additional source of pressure on Lenovo shares. The depreciation of the computer giant’s securities intensified.
Vey-Sern Ling, managing director of Union Bancaire Privee in Singapore, says that any negative news about China will trigger sales. In this case, the sale of shares is implied.
The fall in the value of Lenovo’s securities in January was due not only to Washington’s above-mentioned intention as part of a restrictive policy towards Beijing but also to fears of other new sanctions. Vey-Sern Ling noted that it is difficult to call such market sentiments erroneous.
In the foreseeable future, Lenovo may also face such a negative economic factor as restraint regarding the prospects for restoring demand for personal computers. Canalys analysts in December released a forecast according to which the decline in sales in the market of the corresponding devices will end in 2024. IDC announced at the end of the dernier month of last year that sales of personal computers will grow by more than 3% globally in the next 12 months compared to 2023. This optimistic vision is based on the expectation that the integration of artificial intelligence into the mentioned devices and the beginning of another cycle of updating them, provided for, among other things, by the development of software, will stimulate market growth. But these are forecasts that sometimes do not coincide with reality or only partially reflect the future.
Intel, the largest manufacturer of computer processors, this week unveiled a vision for the future that does not contain the optimism that is absent due to ongoing problems in the industry.
Morgan Stanley on Monday, January 29, downgraded Lenovo’s rating, explaining this decision by pressure on profits in the short term. Analysts at the mentioned organization said that the weakening demand for personal computers, which has become more significant since November 2023, may lead to a downside in the coming months. They paid special attention to the citing slower inventory restocking demands recently.
Bloomberg Intelligence analysts Woo Jin Ho and Steven Tseng say that investors may have been overly optimistic about the potential impact of artificial intelligence on the growth of leading computer manufacturers such as Lenovo.