(Bloomberg) -- Lenovo Group's heady 2023 rally on artificial-intelligence optimism has given way to a weak start this year, as concern about US-China tensions and soft demand weigh on the shares.
The computer giant has dropped more than 12% this week, wiping out a combined $1.8 billion in value in its worst week since October 2021, as investors rush to sell Chinese companies that may face sanctions by the US. Beijing-based Lenovo counts US agencies as a major customer base — and the Chinese government as a significant indirect shareholder.
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Lenovo rallied 70% last year on optimism over replacement demand for products embedded with AI features. But it's down more than 25% already in 2024. China-linked stocks have struggled more generally amid economic concerns — and then last week a US draft bill was released that would block some Chinese biotech companies from accessing federal contracts, which accelerated Lenovo's decline.
“Nowadays any negative news on China will trigger selling,” said Vey-Sern Ling, managing director at Union Bancaire Privee in Singapore. Lenovo has slumped recently “because of concerns over the potential sanctions by the US. It's hard to say the market is wrong.”
Caution about demand for personal computers may also be playing a role in the drop. Intel Corp., the largest maker of computer processors, gave disappointing guidance this week amid headwinds from the personal computer and chip industry. Morgan Stanley on Monday downgraded Lenovo, citing near-term earnings pressure.
“Weakened PC demand since November last year” may lead to downside in coming months, Morgan Stanley analysts including Howard Kao wrote in a note, citing slower inventory restocking demands recently.
In addition, investors may have gotten ahead of themselves with assumptions about how much artificial intelligence features will boost growth for leading computer manufacturers like Lenovo, Bloomberg Intelligence analysts Woo Jin Ho and Steven Tseng wrote in a note this month.
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