Xiaomi’s Profit Plunge Exposes the Cost of Betting Big on AI and EVs

The disconnect between Xiaomi’s ambitions and its stock price has rarely been starker. First-quarter earnings released this week show a company caught between soaring input costs and an aggressive push into artificial intelligence and electric vehicles — a combination that has pushed its shares to a 52-week low and triggered a downgrade from Jefferies.

Adjusted net profit for the three months ended March 2026 tumbled 43% from a year earlier to 6.1 billion renminbi, missing the consensus estimate of 6.4 billion renminbi. The reported net figure fell even harder, dropping 57%. Revenue shrank nearly 11% to 99.1 billion renminbi — the first simultaneous decline in both top and bottom lines in several years.

The culprit is plain: memory chips. DRAM and NAND flash prices have roughly doubled year-on-year as AI data centers vacuum up supply. That has squeezed the gross margin in Xiaomi’s core “Smartphone × AIoT” segment to 22.5%, down sharply from previous levels. Operating profit in the division collapsed 70%.

The company tried to offset the pressure by raising average smartphone selling prices 8.2% to a record 1,310 renminbi per unit, but that meant sacrificing volume. Shipments slid 19% to 33.8 million handsets — the steepest drop among the world’s top five phone makers. More than half of Xiaomi’s devices still sell for under $200, limiting how much pricing power can compensate for higher component costs.

Should investors sell immediately? Or is it worth buying Xiaomi?

EV Division Bleeds Again After Brief Reprieve

Xiaomi’s electric-vehicle business delivered 80,856 cars in the first quarter, up 6.6% from the previous quarter, and generated 19.9 billion renminbi in revenue. But the operating loss widened to 3.1 billion renminbi, reversing two consecutive quarters of near-breakeven performance. That works out to roughly $5,600 lost per vehicle. The automotive gross margin slipped from 23.2% to 20.1%.

Management is standing by its delivery target of 550,000 vehicles for the full year. Analysts at Jefferies are less optimistic, penciling in just 495,000 units.

AI Investment Rises Even as Earnings Crumble

Out of step with the earnings gloom, Xiaomi is ramping up capital spending. Research and development outlays surged 33.4% to 9.0 billion renminbi in the quarter, with the bulk directed toward artificial intelligence. The company has earmarked at least 16 billion renminbi for AI in 2026 and plans to invest more than 60 billion renminbi over the next three years.

The strategic centerpiece is HyperOS 4, the next generation of Xiaomi’s operating system, which is slated for release in July or August. It promises deep AI integration powered by the company’s in-house MiMo-V2.5-Pro language model, already ranked as a leading open-source model. New hardware additions — including the 17T smartphone series with a Leica telephoto lens, Mini-LED TVs, and robotics — are meant to tighten the “Human x Car x Home” ecosystem.

Stock Buybacks and a Brutal Market Reality

To steady investor sentiment, Xiaomi repurchased 298 million Hong Kong dollars worth of shares in late May, bringing cumulative buybacks since the start of the year to over 8 billion Hong Kong dollars. So far, it has not been enough.

Xiaomi at a turning point? This analysis reveals what investors need to know now.

The stock ended the week at 3.08 euros, exactly matching its 52-week low. That represents a decline of 31.5% since January and nearly 47% over the past 12 months. At its peak last June, the equity traded more than 53% higher.

Jefferies cut its price target to HK$25.49 and downgraded the stock to Underperform. The brokerage called Xiaomi’s smartphone margin target of 8% “challenging” given that memory chip price increases could hit 100% in the second quarter. It projects a 10% revenue decline for the full year and warns of further estimate cuts if cost pressures persist.

The next proving ground comes in August, when Xiaomi reports second-quarter results. By then, HyperOS 4 will be in the market, and investors will see whether the margin trajectory is bending back toward the target corridor — or whether the AI and EV bets are simply accelerating the cash burn.

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