Despite facing near-term profitability pressures from rising memory costs, compressed smartphone margins, and high R&D investment in new energy vehicles, Goldman Sachs believes Xiaomi's AI strategy holds potential to unlock long-term value through ecosystem enablement and embodied intelligence. The firm notes that Xiaomi's "backbone profit"—comprising internet services, AIoT, and other income—provides an effective cushion against short-term industry headwinds.
According to market sources, Goldman Sachs issued a report on March 25 reviewing Xiaomi's fourth-quarter 2025 results. Xiaomi's quarterly revenue grew 7% year-over-year, slightly exceeding Goldman's estimate by 1%, while adjusted net profit declined 24% year-over-year, largely in line with market expectations. Following the earnings release, Goldman slightly lowered its revenue and adjusted net profit forecasts for 2026–2028 by 1–2% but maintained its target price of HK$41. This implies upside and downside scenarios with per-share values of HK$46 (41% upside) and HK$27 (17% downside), respectively.
In terms of AI deployment, 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. The company launched three large language models on March 19, leading to a surge in its weekly token usage market share on the OpenRouter platform—from 7.7% during March 15–21 to 19% in the week of March 22, briefly surpassing Google, Anthropic, MiniMax, and OpenAI to rank first globally.
Goldman estimates Xiaomi's 2026 "backbone profit" at 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 smartphone and new energy vehicle profits come under pressure due to cost inflation, the stable profitability of internet services and AIoT businesses can support overall group earnings, forming a core foundation for current valuation.
Fourth-quarter performance met expectations, with operational efficiency improvements anticipated. Goldman noted that while Xiaomi's key metrics for the quarter were largely in line with forecasts, smartphone gross margins were notably pressured—falling 3.8 percentage points year-over-year and 2.8 percentage points quarter-over-quarter to 8.3%, mainly due to a sharp increase in global memory prices. According to Goldman data, as of March 24, 2026, prices for LPDDR4X 6GB–12GB memory had risen 78–100% from end-2025 levels and were up 580–674% year-over-year compared to the first quarter of 2025.
In terms of expense control, Goldman expects non-IFRS operating expenses to increase 11% year-over-year in 2026 to around RMB 75 billion, while core operating expenses are projected to decline 3% to approximately RMB 43 billion, accounting for about 12.8% of core revenue. Sales and marketing expenses and administrative expenses rose only about 2% and 8%, respectively, while R&D spending increased roughly 21%, reflecting a balanced approach between efficiency management and technological investment. Goldman also highlighted that during the industry downturn in 2022–2023, Xiaomi successfully kept core operating expenses flat and reduced them by 9% year-over-year, demonstrating a track record of organizational efficiency improvement.
AI strategy is accelerating, with dual focus on ecosystem enablement and embodied intelligence. AI was a central theme in Goldman's earnings review. Xiaomi's management positions AI capability as a core engine for empowering its entire ecosystem, with MiClaw designed as a prototype for a future AI operating system aimed at delivering superior security and user experience compared to third-party solutions. In embodied AI, the company is prioritizing autonomous driving and humanoid robots, with near-term focus not on third-party commercialization.
Of the RMB 60 billion AI investment planned over three years, approximately RMB 16 billion in 2026 will be primarily allocated to R&D spending (about 70%), with capital expenditure share expected to rise to 60% or more in the following two years, reflecting increased infrastructure development. Goldman believes that Xiaomi's accelerated LLM releases and rapid market share gains on OpenRouter indicate the company is effectively translating R&D investment into quantifiable outcomes.
"Backbone profit" safeguards group earnings, with internet and AIoT acting as stabilizers. Goldman introduced the "backbone profit" framework as a key metric for assessing Xiaomi's profit resilience. This indicator includes net profit from internet services, AIoT, and other income (such as interest and investment gains), with a 2026 estimated total of approximately RMB 33.6 billion, down about 11% year-over-year. The decline is mainly due to more conservative assumptions regarding gains from asset disposals—approximately RMB 5 billion in 2025, which are unlikely to repeat in 2026.
Breaking down by business, Goldman expects the smartphone segment to post a net loss of over RMB 4 billion in 2026, based on shipments of about 145 million units and gross margins around 8%. New energy vehicles and other new businesses are projected to contribute roughly RMB 1 billion in net profit under assumptions of 600,000 deliveries and about 21% gross margin (down from approximately RMB 2.5 billion in 2025). With limited net profit contribution from smartphones and EVs, the RMB 33.6 billion backbone profit covers 110% of the group's adjusted net profit of RMB 30.2 billion, providing solid fundamental support for valuation.
Using a sum-of-the-parts valuation, Goldman maintains a target price of HK$41, implying about 25% upside. Bull and bear case valuations are HK$46 (41% upside) and HK$27 (17% downside), respectively.
Smartphone business: proactive inventory buildup to counter cost pressure, margin recovery may be delayed. Memory prices are in a long-term uptrend expected to persist until 2027, continuing to pressure Xiaomi's smartphone margins. The company has adopted two main countermeasures: leveraging its scale as a global top-tier purchaser to secure supply and negotiate favorable terms, and building inventory ahead of demand—with raw material inventory up 67% year-over-year and 26% quarter-over-quarter, and finished goods inventory up 23% year-over-year and 12% quarter-over-quarter—aiming to secure better pricing or margins in 2026.
A RMB 2.1 billion inventory provision in the fourth quarter (4.8% of quarterly smartphone revenue, the highest since Q4 2022) creates accounting room for gross margin improvement in 2026, which Goldman views as similar to measures taken during the 2023 industry downturn.
In market share, Xiaomi's global smartphone share fell 2.6 percentage points quarter-over-quarter and 2 percentage points year-over-year to 11% in Q4, with declines across mainland China, Europe, Latin America, Southeast Asia, and the Middle East and Africa. Goldman largely maintains its smartphone forecasts: 2026 shipments down 12% year-over-year, revenue down 8%, gross margin at 8.0%; 2027 shipments and revenue returning to growth, with gross margin improving to 9.0%.
New energy vehicles: strong orders for SU7 refresh, clear path to 600,000 annual deliveries. The NEV business continues to show strong momentum. The refreshed SU7 received 30,000 confirmed orders within three days of launch, with order confirmation speed exceeding that of the first-generation model. Notably, 60% of buyers are iPhone users, and 60% opted for paid color options—factors management believes will support margins. The proportion of female users is also higher than with the first-generation model, indicating expanding brand appeal.
Goldman expects Xiaomi to deliver 600,000 NEVs in 2026, slightly above company guidance of 550,000. Gross margin for the smart EV and other new business segment is projected at 21.8% in 2026, slightly below Q4's 22.7% due to memory cost pressure. Adjusted net profit margin is expected to decline from 2.4% in 2025 to 0.6% in 2026, reflecting increased R&D investment in LLMs, robotics, and chips. Goldman anticipates the ongoing volume ramp-up of the YU7 model will be a key driver of 2026 delivery growth, with the SU7 refresh Standard and Pro versions deliverable in May–June and the Max version in May–July.
AIoT: overseas growth as new engine, inflection point expected in second-half growth. The AIoT business faces pressure from a high base in the domestic market, with Goldman forecasting a 2% year-over-year decline in full-year 2026 revenue, including a 14% drop domestically. However, overseas AIoT revenue is expected to grow 27% year-over-year (up from 19% in 2025), a momentum shift that Goldman believes will drive a quarterly year-over-year growth inflection in Q3 2026. Specifically, AIoT revenue is projected to decline about 24% and 14% year-over-year in Q1 and Q2 2026, respectively, before rebounding significantly in the second half as comparables normalize.
Management remains positive about AIoT's medium-to-long-term growth prospects. Domestically, the company continues to advance its premiumization strategy—for instance, Xiaomi's air conditioner has captured 10% market share in China, while refrigerators and washing machines remain at 4–5%, leaving room for expansion. Overseas, the target AIoT market is about three times the size of the domestic market. Xiaomi is expanding its overseas retail network more cautiously, planning to reach about 1,000 stores by end-2026 (up from around 450 in 2025). In internet services, global monthly active users grew 7% year-over-year to 754 million in Q4. Goldman expects Q1 2026 internet services revenue to increase about 4% year-over-year, with overseas revenue up approximately 11% and domestic revenue largely flat, continuing a stable growth trend.
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