Raised Xiaomi cooperation caps validate AI demand; Jefferies maintains Buy rating on Kingsoft Cloud

Overview

This report is Jefferies' quick take on Kingsoft Cloud KC.US. The key event is Kingsoft Cloud's announcement of revised annual transaction caps under its cooperation framework with Xiaomi, including providing cloud services to Xiaomi, procuring IDC services, procuring hardware equipment, and procuring API services. Jefferies believes the adjustment is broadly in line with market expectations, but further validates strong AI demand and maintains the investment thesis of Kingsoft Cloud as an AI beneficiary.

Core views

Jefferies maintains its Buy rating and US$19 target price. The report believes Kingsoft Cloud continues to prioritize key customers under supply constraints, and its long-term growth thesis remains intact; the substantial increases in Xiaomi-related cloud service and hardware procurement caps indicate that major customer demand has exceeded previous expectations. AI models, code generation, agents, Workspace scenarios, and medium- to long-text content opportunities are expected to drive expanding demand for cloud service providers, and Kingsoft Cloud may benefit as a neutral platform connecting different model companies.

Analysis framework

The report mainly uses event-driven analysis and fundamental tracking: it first assesses the signaling effect of the adjustment to Xiaomi cooperation caps on demand, then combines expectations for 1Q revenue, gross margin, and adjusted EBITDA margin to judge execution progress; on valuation, it maintains a DCF-based target price and tracks key points for upcoming earnings calls including AI revenue, customer pricing, capital expenditures, and compute financing.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  Kingsoft Cloud's US$19 target price is based on DCF valuation, while also considering Xiaomi's and Kingsoft's long-term strategic support.

• Rating systemJefferies Buy rating

  12-month total return expectation

  Jefferies typically defines a Buy as a security expected to deliver a total return of 15% or more over 12 months; if the stock price remains below US$10, the threshold is 20% or more.

• Thematic analysisAI beneficiary framework

  AI demand drives growth for cloud service providers

  From the perspective of expanding demand for AI models, code generation, agents, Workspace, and MaaS, the report judges that cloud service providers such as Kingsoft Cloud may benefit.

Asset mapping & comparison

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

• KC.US

  Core covered name; report maintains Buy rating

  Strengths

  Raised Xiaomi cooperation demand, strong AI demand, faster public cloud growth, and the ability to serve different model companies as a neutral cloud platform.

  Weaknesses

  Still affected in the short term by supply constraints and seasonality in enterprise cloud delivery, while capital expenditure and compute financing needs may rise.

  Comparison

  The report discusses Kingsoft Cloud within the beneficiary framework for AI cloud service providers and emphasizes its relatively neutral platform attributes.

  Risks

  Intensified price wars, high-end customers shifting to private cloud or self-built resources, and tighter regulation.

• Xiaomi Corporation

  Important customer and strategic partner

  Strengths

  The increased caps for Xiaomi-related cloud services, IDC, hardware, and API cooperation reflect business demand exceeding previous expectations.

  Weaknesses

  Xiaomi itself faces risks including smartphone competition, storage costs, EV production ramp-up, and geopolitics.

  Comparison

  In the report, Xiaomi serves as an important source of demand and strategic support for Kingsoft Cloud, while separately carrying a HOLD rating and HK$30.45 target price.

  Risks

  If Xiaomi demand or its smartphone or EV businesses are weaker than expected, related cloud service demand may be affected.

Key data

• Xiaomi cloud services 2026 annual capRMB4,000mRaised from RMB3,138.3m, an increase of about 27%.
• Xiaomi cloud services 2027 annual capRMB6,000mRaised from RMB4,035.1m, an increase of about 49%.
• IDC service procurement 2026/2027 annual capRMB100m / RMB150mPreviously both were RMB82m.
• Hardware equipment procurement 2026/2027 annual capRMB1,000m / RMB1,500mThe 2026 cap was significantly raised from RMB6.7m, and the 2027 cap is newly introduced.
• API service procurement cap2026 RMB20m; 2027 RMB50mThe proposal needs shareholder approval by June 30.
• 1Q revenue forecastabout RMB2.6bnDown 5% QoQ, up 34% YoY, with the forecast unchanged.
• 1Q segment revenue growth forecastPublic cloud YoY +43%; enterprise cloud YoY +13%The QoQ decline is mainly due to seasonality in enterprise cloud delivery.
• 1Q adjusted GPM and EBITDA margin14%; 28.4%Both remain unchanged and are close to 4Q levels.
• Rating and target priceBuy; US$19.00Current price US$16.94, implying about +12% upside.

Impact & implications

The increase in cooperation caps strengthens visibility into demand from Xiaomi and AI-related customers for Kingsoft Cloud, and also suggests that in 2026 the company may continue prioritizing key customers under compute supply constraints. If AI training, inference, and MaaS demand materialize, Kingsoft Cloud's revenue mix and profitability may receive support; however, capital expenditures, hardware procurement, customer pricing, and industry price competition remain important variables affecting valuation realization.

Risks

• Price wars in the cloud computing industry intensify competition.
• High-quality customers rely more on internal resources when shifting to private cloud.
• The regulatory environment becomes more stringent.
• Rising storage and CPU costs may affect industry pricing and margins.
• If capital expenditures and compute financing channels fall short of expectations, supply expansion may be constrained.

What to watch

• Commentary in the upcoming earnings call on the competitive landscape and pricing trends in the cloud industry.
• Pricing arrangements for existing and new customers.
• Latest progress in cooperation with Xiaomi and related revenue trends.
• The implementation of AI training, inference, and MaaS opportunities in 2026.
• AI revenue growth and contribution in the coming years.
• Revenue trends in public cloud and enterprise cloud.
• Capital expenditure outlook and progress across different compute financing channels.
• Adjusted EBITDA margin outlook.
• Whether the proposal for the API service procurement cap can obtain shareholder approval by June 30.