(Bloomberg) -- Chinese AI server maker xFusion Digital Technologies is pursuing an IPO with 58.2 billion CNY in annual revenue but a profit margin of less than 2%, exposing the intense pressure on hardware suppliers in the race to build out artificial intelligence.
The company’s application to list on the ChiNext market, which was formally accepted on May 22, shows net margins compressed to between 1% and 2% from 2023 to 2025, according to the filing. The document states that while revenue more than doubled, net profit grew at a much slower pace as the company was "forced to accept lower gross margins" from its large internet customers.
xFusion’s revenue jumped from 25.1 billion CNY in 2023 to 58.2 billion CNY ($8.1 billion) in 2025, a period when AI servers became its largest business line, growing from 25% to over 50% of sales. In contrast, net profit only increased from 507 million CNY to 1.03 billion CNY over the same two years, with gross margins falling 1.45 percentage points in 2025 to 8.64%.
The filing lays bare the central tension in the global AI buildout: while demand for computing power is exploding, the hardware providers capturing that demand face thinning margins. The prospectus notes that high research and sales costs, which reached a combined 2.49 billion CNY in 2025, consumed most of the company's gross profit, a challenge mirrored by global competitors.
xFusion, which is backed by the Henan provincial government, plans to raise 8 billion CNY to fund new算力基础设施 (computing power infrastructure) and research into AI technologies. The company is a key player in China's "AI Supercycle," a nationwide push to develop domestic technology and enterprise applications, according to research from IDC.
The challenge of turning server revenue into profit is not unique to xFusion. Lenovo Group, a key competitor, recently reported a record quarter for its Infrastructure Solutions Group with a $15.5 billion order pipeline. However, analysts noted that AI servers carry thinner margins than PCs and depend heavily on securing GPU allocations at competitive prices.
This dynamic highlights a shift in the AI market where, as one recent market report from Artificial Analysis noted, "equal intelligence does not mean equal economics." The competitive advantage is moving from raw performance to efficiency, measured in "Tokens per watt." For xFusion and its rivals like Lenovo, Dell, and Supermicro, the long-term test will be navigating intense price pressure from hyperscale customers and managing high operating costs to improve profitability beyond the current 1-2% range. The IPO may provide capital, but it also brings public scrutiny to a business model defined by massive scale and minimal margins.
This article is for informational purposes only and does not constitute investment advice.
