2Q26 earnings may bottom out, with EV and AI catalysts driving a potential 3Q26 reversal

Overview

This report previews Xiaomi Corp.'s 2Q26 results and assesses the latest trends in smart EVs, artificial intelligence, smartphones and AIoT businesses. Goldman Sachs expects 2Q26 group earnings to be at the low point for the year, but believes the recent share price pullback has already sufficiently reflected concerns over EV delivery targets and gross margins. With the official launch of SkyNomad and the successive rollout of products such as the next-generation XRING and HyperOS, Xiaomi 18 and MiMo-V3, 3Q26 may see improvements in both narrative and financials.

Core views

First, 2Q26 may be the full-year earnings trough, with revenue expected to decline 6% YoY to Rmb109bn and adjusted net profit down 45% YoY to Rmb6.0bn, while 3Q26 revenue growth is expected to recover to roughly flat YoY. Second, although the 2026 total EV delivery forecast is lowered from 550k to 500k, SkyNomad's early demand has been strong, and its space, range and value for money are expected to support medium- to long-term sales. Third, Goldman Sachs believes competitive pricing does not necessarily imply lower gross margins, as economies of scale, supply chain integration and optional configurations may support pricing and margins. Fourth, Xiaomi's AI commercialization path is gradually taking shape, covering consumer, enterprise and physical-world scenarios, with MiMo's API request volume and token share growing rapidly. Fifth, smartphone shipments remain under pressure, but higher average selling prices, easing storage cost pressure and a narrowing decline in AIoT in the second half are expected to provide some cushion.

Analysis framework

The report combines quarterly earnings forecasts, segment revenue and profit breakdowns, EV delivery models by vehicle type, app activity and waiting times, AI API and token usage data, smartphone shipments and average selling prices, storage price trends and AIoT channel data to form its judgments; valuation uses a sum-of-the-parts approach, constructing the target price based on core business multiples, smart EV discounted cash flow and a holding company discount.

Methodology notes

• Valuation methodSum-of-the-parts valuation (SOTP)

  Assess the value of core businesses and new businesses separately, then aggregate them and factor in a holding company discount.

  The target price is based on 16x next-12-month EV/NOPAT for the core business, a discounted cash flow value of US$39bn for the smart EV business, and a 10% holding company discount.

• Valuation methodDiscounted cash flow method (DCF)

  Estimate the present value of a business based on future free cash flows and long-term growth assumptions.

  The smart EV, AI and other new businesses use a discounted cash flow approach, with the smart EV valuation using a 12% weighted average cost of capital and a 3% perpetual growth rate.

• Forecast analysisSegment earnings model

  Break down revenue, gross margin and net profit by businesses including smartphones, AIoT, internet, smart EVs and artificial intelligence.

  This method is used to identify the impact of smartphone losses, AIoT and internet backbone profits, EV economies of scale and AI investment on group earnings.

• Relative comparisonAI revenue multiple scenario comparison

  Refer to comparable AI companies' price-to-annual recurring revenue multiples for illustrative valuation.

  Based on MiniMax at approximately 10x or Z.AI at approximately 24x P/ARR, Xiaomi's AI business has an illustrative value of approximately US$2-6bn; the report also emphasizes that Xiaomi's commercialization path differs from pure AI labs, so this comparison has limitations.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Xiaomi Corp. (1810.HK)

  Directly covered stock

  Strengths

  It has the world's third-largest smartphone brand, leading consumer-grade AIoT and new energy vehicle platforms, a strong balance sheet, ecosystem integration capabilities, scale cost advantages and deep participation in the EV supply chain.

  Weaknesses

  Smartphone shipments and market share are under pressure in 2026, the smartphone business is expected to be loss-making, EV delivery forecasts have been lowered, and AI investment is a short-term drag on new business gross margins.

  Comparison

  SkyNomad differentiates itself through space, long range and value for money; MiMo-V2.5 is at the frontier of intelligence level and cost efficiency among open-source models, but its AI commercialization path is not fully comparable with pure model companies.

  Risks

  Key risks include intensified competition in smartphones and EVs, gross margin pressure, weaker-than-expected brand premiumization or EV execution, geopolitical and regulatory uncertainties, macro and demand weakness, and exchange rate volatility.

Key data

• 12-month target priceHK$40.00Maintained unchanged, using sum-of-the-parts valuation.
• Current price and upsideHK$27.64; 44.7%The current price shown on the report cover and the potential upside corresponding to the target price.
• 2Q26 revenue forecastRmb109bnExpected to decline 6% YoY; down 12% YoY excluding EVs, AI and other new businesses.
• 2Q26 adjusted net profit forecastRmb6.0bnExpected to decline 45% YoY and 1% QoQ, potentially the full-year low.
• 2026 to 2028 revenue forecastsRmb450.5bn/Rmb540.2bn/Rmb636.2bn2026 to 2028 forecasts are lowered by approximately 5% on average versus prior estimates.
• 2026 to 2028 earnings per share forecastsRmb0.96/Rmb1.25/Rmb1.63Prior forecasts were Rmb1.02, Rmb1.36 and Rmb1.73, respectively.
• Total EV delivery forecasts500k in 2026; 770k in 2027; 1.036mn in 2028The previous forecasts for 2026 and 2027 were 550k and 800k, respectively.
• SkyNomad delivery forecasts117k in 2026; 350k in 2027Prior forecasts were 110k and 240k, respectively; N70 is expected to account for about two-thirds of SkyNomad sales in 2027.
• Gross margin of smart EV, AI and other new businessesExpected at 20.6% in 2Q26Expected to be 21.1% excluding the impact of AI and other new businesses.
• AI and other new business revenueApproximately Rmb100-150mn in 2Q26; approximately Rmb300mn in 3Q26Based on average daily token usage of over 3tn and over 6tn, respectively; annual recurring revenue is expected to be approximately US$200mn by end-2026.
• MiMo usage trendsJune API requests increased 27x versus January; OpenRouter token share was approximately 19% in JulyProgramming and agent tasks accounted for approximately 80% of MiMo-V2.5 token usage.
• 2Q26 smartphone shipments31.2mnDown 26% YoY; average selling price is expected to increase 25% YoY to approximately Rmb1.34k.
• 2026 group forecast revisionsRevenue Rmb450.5bn; EPS Rmb0.96The target price was not reduced, mainly because the earnings forecast cut was offset by the update to the Rmb/HK$ exchange rate assumption from 1.09 to 1.15.

Impact & implications

In the short term, weak 2Q26 earnings, a lowered full-year EV delivery target and pressure on smartphone sales may limit share price performance; however, if 2Q26 confirms an earnings trough, market attention may shift to improving growth in 3Q26 and a dense pipeline of product catalysts. In the medium term, SkyNomad demand delivery, healthy EV gross margins and accelerated MiMo commercialization may increase market recognition of the value of Xiaomi's "Human x Car x Home" full ecosystem and physical intelligence platform. The unchanged target price indicates that Goldman Sachs believes the earnings forecast cuts have been offset by FX factors and the long-term value of new businesses.

Risks

• Competition in the global smartphone industry intensifies further, and Xiaomi's market share improvement is weaker than expected.
• Gross margin pressure in the smartphone or EV business is higher than expected.
• SkyNomad demand, delivery ramp-up or execution of the 2026 500k EV delivery target falls short of expectations.
• Progress in Xiaomi's brand premiumization is below expectations.
• AI commercialization speed, token demand or MiMo-V3 product performance is below expectations.
• Geopolitical risks and regulatory uncertainties increase.
• The macro environment weakens, and smartphone and AIoT demand is below expectations.
• Exchange rate fluctuations such as Rmb and HK$ affect earnings forecasts and valuation.

What to watch

• Whether 2Q26 results confirm the group earnings trough, and whether 3Q26 revenue growth can recover.
• SkyNomad's pricing, configurations, confirmed order volume and the sales mix of N70 and N90 after its official launch.
• Progress toward Xiaomi EV's 2026 500k delivery forecast and changes in waiting times.
• Whether the smart EV segment gross margin can remain at around 20% or above.
• Product and ecosystem feedback after the launch of the next-generation XRING chipset and HyperOS.
• The late-September launch of flagship Xiaomi 18 and its sales, average selling price and premiumization performance.
• MiMo-V3 launch timing, API call volume, token share and realization of AI revenue.
• Memory price trends and their impact on smartphone gross margins.
• Whether the AIoT revenue decline can narrow in 2H26, and whether overseas business can continue to outperform domestic business.