Key Takeaways:
Barclays kept its overweight rating on Xiaomi with a $30 ADR target, an 82% upside, calling the AI strategy the most underappreciated asset.
"Xiaomi's AI strategy is the most underappreciated part of the stock for investors," Barclays said in its Aug. 18 note, arguing the company's approach of embedding models into devices and operating systems across its "human, car, home" ecosystem sets it apart from other AI players.
Q2 revenue fell 6.1% year over year to RMB 108.9 billion, beating Barclays' estimate by 5.2%. Smartphone shipments dropped 26.5% to 31.2 million units, while average selling price rose 25.9% to a record RMB 1,351. EV deliveries reached 104,200 units, topping the 90,000 forecast, with segment gross margin of 19.2% and an operating loss of RMB 2.6 billion.
The maintained target values Xiaomi's core business at 10 times 2027 EV/EBITDA and its EV unit at 20 times. Barclays trimmed its 2026 adjusted net profit forecast to RMB 24.2 billion on memory cost pressure while raising revenue on EV strength. The SkyNomad extended-range SUV launch in September is the next event to watch.
Xiaomi's foundation model MiMo-V2.5 has gained traction on developer platform OpenRouter and began generating API and token revenue in the second quarter, though management said the priority remains model capability and scale over monetization. AI-related spending accounted for nearly 30 percent of first-half R&D, which totaled RMB 18.2 billion, up 25.6 percent year over year. Xiaomi set a 2026 AI investment target of RMB 16 billion and a three-year plan of RMB 60 billion. New products include operating system HyperOS 4, home AI platform Miloco 2.0, and Xiaomi-Robotics-U0, a humanoid robot model deployed in manufacturing facilities.
Memory prices run about five times year-ago levels, pushing entry-level device memory costs to roughly RMB 1,500 and lifting those models above RMB 2,000. Management expects memory price month-over-month growth to slow in the third quarter and decline in the fourth. Smartphone gross margin came in at 8.5 percent, above the company's 8 percent target. Global industry shipments fell 6 percent year over year in the second quarter, according to Omdia, making Xiaomi's decline steeper than the broader market.
IoT revenue fell 19.2 percent year over year on the high base from mainland China subsidies, which Barclays expects to recover by the third quarter. Xiaomi has opened more than 640 retail stores outside China and plans about 1,000 by end-2026, with overseas IoT revenue estimated at 20 to 30 percent of the segment at higher margins. EV deliveries rose 28.2 percent year over year even as mainland China's passenger vehicle market fell 22 percent, according to the company's earnings release.
Barclays' bull case values the two businesses at 10 and 25 times respectively for a $34 target, while the bear case at 5 and 10 times yields $16. The stock closed at $16.45 on Aug. 17. Investors will watch SkyNomad pricing and third-quarter margins for confirmation that cost pressure is easing.
This article is for informational purposes only and does not constitute investment advice.
