In response to significant upward pressure on memory costs, margin compression in the smartphone business, and near-term profitability challenges stemming from high R&D investments in new energy vehicles, Goldman Sachs believes that Xiaomi's AI strategy is poised to unlock long-term value through ecosystem empowerment and embodied intelligence. Meanwhile, the company’s "core profits," consisting of internet services, AIoT, and other revenue streams, provide an effective buffer against short-term industry headwinds.
According to the ZF Trading Desk, Goldman Sachs issued$XIAOMI-W (01810.HK)$a Q4 2025 earnings review report. Xiaomi's revenue for the quarter increased by 7% year-over-year, slightly above Goldman Sachs' forecast of 1%, while its adjusted net profit fell by 24% year-over-year, broadly in line with market consensus expectations. Following the release of the results, Goldman Sachs marginally reduced its revenue and adjusted net profit forecasts for 2026 to 2028 by 1% to 2%. However, it maintained a target price of HKD 41 per share, corresponding to an upside scenario value of HKD 46 (upside potential of 41%) and a downside scenario value of HKD 27 (downside risk of 17%).
Regarding AI initiatives, Xiaomi announced plans to invest a total of RMB 60 billion in artificial intelligence over the next three years, with approximately RMB 16 billion allocated for 2026. On March 19, the company unveiled three large language models, which subsequently propelled its weekly token usage market share on the OpenRouter platform from 7.7% during the week of March 15-21 to 19% during the week of March 22. This surge briefly placed Xiaomi ahead of Google, Anthropic, MiniMax, and OpenAI, ranking it first globally.
Goldman Sachs estimates that Xiaomi’s "core profits" (encompassing internet services, AIoT, and other revenues) for 2026 will amount to approximately RMB 33.6 billion, equivalent to 110% of the group’s adjusted net profit of RMB 30.2 billion for the same year. This suggests that even if profitability in the smartphone and new energy vehicle businesses comes under temporary pressure due to rising costs, stable earnings from internet services and AIoT operations will remain sufficient to support overall group profitability, forming the core pillar of current valuation.
Q4 results met expectations, with operational efficiency controls anticipated.
Goldman Sachs pointed out that$XIAOMI-W (01810.HK)$Key metrics for Q4 largely met expectations, but smartphone gross margin faced the most pronounced pressure, declining by 3.8 percentage points year-over-year and 2.8 percentage points quarter-over-quarter to 8.3%, primarily driven by a significant rise in global memory prices. According to Goldman Sachs data, as of March 24, 2026, prices for LPDDR4X 6GB to 12GB memory surged between 78% and 100% compared to the end of 2025, with a year-over-year increase of 580% to 674% versus Q1 2025.
In terms of operating expense management, Goldman Sachs forecasts non-IFRS operating expenses to grow by 11% year-over-year to approximately RMB 75 billion in 2026, while core operating expenses are expected to decline by 3% year-over-year to around RMB 43 billion, accounting for approximately 12.8% of core revenue. Sales and marketing expenses, as well as administrative expenses, are projected to increase by about 2% and 8%, respectively, while R&D expenses are set to rise by approximately 21%, demonstrating a balanced approach between cost control and technology investment. Goldman Sachs also highlighted that during the industry downturn cycle of 2022-2023, the company successfully kept core operating expenses flat year-over-year in 2022 and reduced them by 9% year-over-year in 2023, indicating a track record of organizational efficiency improvements.
Accelerated implementation of AI strategy with dual focus on ecosystem empowerment and embodied intelligence.
AI was the central theme of Goldman Sachs' in-depth analysis in this earnings review.$XIAOMI-W (01810.HK)$Management positioned AI capabilities as the core engine empowering the entire ecosystem. MiClaw has been designed as a prototype for the future AIOS (Artificial Intelligence Operating System), aiming to deliver superior security and user experience compared to third-party solutions. In the field of embodied AI, autonomous driving and humanoid robotics have been identified as key focus areas, with third-party commercialization not being the primary objective at this stage.
In terms of investment planning, out of the three-year commitment of RMB 60 billion for AI, approximately RMB 16 billion earmarked for 2026 will be predominantly allocated to R&D expenses (around 70%), while capital expenditures are expected to account for 60% or more of spending in the following two years, reflecting ongoing efforts to strengthen infrastructure development. Goldman Sachs views the accelerated release cadence of Xiaomi’s LLMs and rapid gains in market share on the OpenRouter platform as clear indications that the company is swiftly converting its AI R&D investments into measurable interim outcomes.
"Backbone profit" safeguards group profitability, with internet and AIoT acting as stabilizers.
Goldman Sachs introduced the “Backbone Profit” framework in the report as a core indicator for assessing$XIAOMI-W (01810.HK)$profit resilience. This metric encompasses net profits from internet services, AIoT, and other income (including interest income and investment gains), with an estimated total of approximately RMB 33.6 billion for 2026, reflecting a year-over-year decline of about 11%. The decrease is mainly attributed to Goldman Sachs adopting a more conservative assumption regarding gains from asset sales—approximately RMB 5 billion in 2025, which is unlikely to be replicated in 2026.
Breaking down the business segments, Goldman Sachs forecasts that Xiaomi's smartphone segment will incur a net loss exceeding 4 billion yuan in 2026 due to an estimated shipment volume of approximately 145 million units and a gross margin of about 8%. Meanwhile, new energy vehicles (NEVs) and other new businesses are expected to contribute approximately 1 billion yuan in net profit (down from about 2.5 billion yuan in 2025) based on deliveries of 600,000 units and a gross margin of around 21%. Given the relatively limited net profits from both smartphone and electric vehicle operations, the 33.6 billion yuan backbone profit would cover 110% of the group's adjusted net profit of 30.2 billion yuan, providing solid fundamental support for valuation.
Based on a sum-of-the-parts (SOTP) valuation, Goldman Sachs maintains a target price of HKD 41 per share, implying an approximate 25% upside potential. Under optimistic and pessimistic scenarios, the per-share values are estimated at HKD 46 (upside of 41%) and HKD 27 (downside of 17%), respectively.
Smartphone Business: Proactive inventory buildup offsets cost pressures; gross margin improvements may be delayed.
Memory prices are projected by Goldman Sachs to remain in a long-term upward cycle until 2027, exerting continued pressure on$XIAOMI-W (01810.HK)$the gross margin of the smartphone business. The company has adopted two main measures to address the challenge: First, leveraging its scale advantage as one of the world’s largest purchasers to secure supply and achieve relative cost advantages; second, proactively adjusting inventory strategies. Raw material inventory grew by 67% year-over-year and 26% quarter-over-quarter, while finished goods inventory increased by 23% year-over-year and 12% quarter-over-quarter, aiming to mitigate pricing pressures or improve gross margins in 2026 through early shipments.
The provision of 2.1 billion yuan for inventory reserves recorded in the fourth quarter (accounting for 4.8% of smartphone revenue during the quarter, the highest level since Q4 2022) creates room for gross margin improvement in 2026 from an accounting perspective. Goldman Sachs views this measure as analogous to arrangements made during the industry downturn in 2023.
In terms of market share, Xiaomi’s global smartphone market share declined by 2.6 percentage points quarter-over-quarter and 2 percentage points year-over-year to 11% in the fourth quarter, with declines observed across mainland China, Europe, Latin America, Southeast Asia, the Middle East, and Africa. Goldman Sachs keeps its smartphone business forecasts largely unchanged: shipments are expected to decline by 12% year-over-year, revenue by 8% year-over-year, and gross margin remains at 8.0% in 2026; both shipments and revenue are projected to resume growth in 2027, with gross margin improving to 9.0%.
New Energy Vehicles: Strong order intake for SU7 facelift model; clear path toward 600,000-unit annual deliveries.
The NEV business continues to demonstrate strong momentum. The facelift version of the SU7 model received 30,000 confirmed orders within three days of its launch, surpassing the order confirmation speed of the first-generation SU7. Notably, 60% of buyers are iPhone users, and 60% opted for paid color options, which management believes will positively support gross margin. Additionally, the proportion of female users exceeds that of the first-generation model, indicating ongoing brand appeal expansion.
Goldman Sachs expects that in 2026$XIAOMI-W (01810.HK)$New energy vehicle deliveries are expected to reach 600,000 units, slightly higher than the company's guidance of 550,000 units. The gross margin for the smart electric vehicle and other new business segments is projected to be 21.8% in 2026, slightly lower than 22.7% in the fourth quarter, due to memory cost pressures. As a result of increased R&D investment in large language models, robotics, and chips, the adjusted net profit margin is expected to decline from 2.4% in 2025 to 0.6% in 2026. Goldman Sachs anticipates that the continued ramp-up of the YU7 model will serve as a key driver of delivery growth in 2026. The SU7 facelift Standard and Pro versions are expected to be delivered between May and June, while the Max version is anticipated to be delivered between May and July.
AIoT: Overseas Growth Becomes New Engine; Second-half Growth Expected to Reach Inflection Point
The AIoT business faces pressure from a high base in the domestic market. Goldman Sachs forecasts a 2% year-on-year decline in total revenue for 2026, with domestic revenue falling by 14%. However, overseas AIoT revenue is expected to grow by 27% year-on-year (up from 19% in 2025). Goldman Sachs anticipates this growth momentum will drive an inflection-point improvement in overall AIoT revenue on a quarterly year-on-year basis in the third quarter of 2026. Specifically, AIoT revenue is forecasted to decline by approximately 24% and 14% year-on-year in the first and second quarters of 2026, respectively. With normalization of the base in the second half of the year, growth is expected to rebound significantly.
Management holds a positive outlook on the medium- to long-term growth prospects of AIoT. In the domestic market, the company continues to advance its premiumization strategy. For instance, Xiaomi Air Conditioners have captured a 10% domestic market share, while refrigerators and washing machines remain at 4% to 5%, indicating significant room for growth. In overseas markets, the target market size for AIoT is approximately three times that of the domestic market. The company is expanding its overseas retail network at a more measured pace, planning to open around 1,000 stores by the end of 2026 (up from approximately 450 in 2025). In terms of internet services, global monthly active users grew by 7% year-on-year to 754 million in the fourth quarter. Goldman Sachs forecasts that internet service revenue will increase by about 4% year-on-year in the first quarter of 2026, with overseas revenue growing by approximately 11% year-on-year and domestic revenue remaining stable, maintaining an overall steady growth trend.
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