Key Takeaways:
(P1) Chinese AI firm Zhipu AI’s annual recurring revenue (ARR) from its open API platform has surged to approximately $250 million, a 60-fold year-over-year increase that signals a dramatic acceleration in its monetization just three months into 2026.
(P2) "The simultaneous rise in token prices and demand is the clearest signal of the model's true competitiveness and its traction in high-value workloads," JPMorgan analyst Olivia Xu said in a research note.
(P3) The ARR figure, up from about $73 million at the end of 2025, was accompanied by an 83 percent year-to-date increase in the price of its API tokens. The company's API gross margin expanded to 19 percent in 2025 from just three percent in 2024, while its cloud deployment business reached a positive 22.4 percent gross margin in the second half of the year.
(P4) This performance suggests Zhipu is successfully establishing pricing power in a fiercely competitive domestic market, shifting its business toward a scalable subscription model and clarifying its path to profitability, which JPMorgan now projects for 2029. The results could trigger a re-rating for the entire Chinese AI sector.
The most significant surprise for analysts was the disclosure that API ARR reached ~$250 million by the end of March 2026. This puts the company on a strong trajectory to meet its ambitious year-end target of $1 billion. Morgan Stanley called the ARR growth a "Major Surprise" that reinforces its investment thesis.
This growth is driven by a structural shift in Zhipu's business. In the second half of 2025, cloud-based deployment revenue grew 431 percent, far outpacing the 57 percent growth in private deployments. As a result, cloud services now account for 26 percent of total revenue, up from single digits previously. This marks a transition from capital-intensive, project-based work to a lighter, high-adhesion subscription economy.
Against the backdrop of an intense price war among China's large model providers, Zhipu's ability to raise prices without deterring customers is a rare indicator of a strong competitive moat. JPMorgan's report highlighted that token prices have climbed 83 percent since the start of the year while demand continues to grow.
Analysts attribute this to the company's success in high-value scenarios like programming and AI agents. In these areas, customers are shifting their focus from pure cost-per-token to the quality, throughput, and stability of task completion. This willingness to pay a premium for better results is the foundation of Zhipu's emerging pricing power, built on the rapid iteration of its GLM model series.
Zhipu's profitability picture is undergoing a qualitative change. The company's gross profit in 2025 was nearly enough to cover its sales and administrative expenses, meaning the core business is approaching operational breakeven. The reported net loss is almost entirely attributable to strategic R&D spending of approximately 3.2 billion RMB on next-generation models.
Gross margins are expanding rapidly. The API-specific gross margin jumped by 16 percentage points to 19 percent in 2025. JPMorgan forecasts the group's overall gross margin will rise to 31 percent in 2026 and reach 37 percent by 2028, driven by economies of scale and more efficient model inference.
Following the report, JPMorgan maintained its "增持" (Overweight) rating and raised its price target to 950 HKD from 800 HKD. The new target is based on a 30x multiple of projected 2030 earnings, discounted back to the end of 2026. The bank forecasts Zhipu's revenue will reach 19.7 billion RMB in 2028 and exceed 98 billion RMB by 2030, with net profitability achieved in 2029.
Morgan Stanley also reiterated its "增持" (Overweight) rating with a 560 HKD price target. While the two firms use different valuation methodologies, their bullish conclusions on Zhipu's long-term value are aligned.
This article is for informational purposes only and does not constitute investment advice.
