Xiaomi’s AI Ambitions Face Profitability Test Amid Market Jitters

Xiaomi’s stock is caught in a tug-of-war between its expansive artificial intelligence strategy and mounting concerns over near-term earnings. While analysts at Goldman Sachs reaffirm their bullish stance, their simultaneous warning of a significant profit decline highlights the uncertainty currently clouding the investment thesis.

Earnings Release Looms as Forecasts Dim

All eyes are on the upcoming financial results scheduled for March 24. According to consensus estimates compiled by Bloomberg, the figures for fiscal year 2025 may already indicate a contraction in profit. The outlook darkens further for 2026, with Goldman Sachs projecting a net profit of approximately 27.9 billion yuan. This represents a sharp fall from the estimated 39.5 billion yuan for 2025.

This anticipated downturn helps explain the stock’s recent volatility and lack of clear direction. Investor skepticism is visible in the short interest data, which has ballooned to roughly 7.3% of the free float—a substantial increase from about 2% at the end of September. Year-to-date, the shares have declined nearly 20% and trade approximately 28% below their 200-day moving average.

A Costly Push to Become an “AI Leader”

The profit pressure is intrinsically linked to Xiaomi’s aggressive investment cycle. On March 19, the company unveiled three new additions to its MiMo large language model series. The flagship MiMo-V2-Pro model, boasting over one trillion parameters, ranks eighth globally on a major AI benchmark. It was launched alongside the multimodal agent model MiMo-V2-Omni and the speech synthesis model MiMo-V2-TTS. The event also formally introduced the previously anonymous “Hunter Alpha” model, ending speculation within developer circles.

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

Goldman Sachs interprets this concentrated model offensive as a signal that Xiaomi is transitioning from an AI investment phase into a stage of tangible monetization. The firm sees the company on a path to becoming a “Physical AI Leader,” building proprietary capabilities in AI, operating systems, and chips.

This ambition carries a hefty price tag. CEO Lei Jun announced plans to invest over 16 billion yuan in AI research during 2026 alone, with a minimum three-year commitment exceeding 60 billion yuan. The investment bank expects research and development expenses to reach 40 billion yuan in 2026, up from an estimated 32.2 billion yuan the prior year.

Market Reaction Reflects Underlying Tensions

The market’s mixed reaction to recent news underscores this conflict between long-term strategy and short-term financials. Shares initially jumped around 5% on Thursday following the AI reveal and an update on its electric vehicle. The rally was short-lived. A steep sell-off ensued the next day, with the stock plunging 8.6% to become the worst performer in the Hang Seng Tech Index. The trigger was a growing belief that a modest price adjustment for its SU7 electric car would do little to enhance the segment’s profitability.

The central question for investors is whether the strategic repositioning as a “Physical AI Leader” can justify the looming earnings contraction. Goldman Sachs maintains its “Buy” recommendation, arguing that short-term price-to-earnings considerations fail to capture the value of the long-term investment model. The financial report on March 24 will reveal just how much convincing the market still requires.