AI ecosystem synergies and cloud business improvements provide growth support, while the gaming business still awaits a recovery in 2027

Overview

This report summarizes key takeaways from Goldman Sachs' discussion with Kingsoft's CFO at the Asia Leaders Conference in Hong Kong on August 31, 2026, focusing on Xiaomi ecosystem synergies, the three-tier growth framework for office applications, the gaming business recovery, Kingsoft Cloud's transformation, and the shareholder return framework. The report presents a view that structural opportunities coexist with near-term operating pressure and explicitly labels Kingsoft as Not Covered (NC).

Core views

The report first outlines the AI ecosystem synergies between Kingsoft and Xiaomi. Kingsoft Cloud is providing computing power for Xiaomi's model, new energy vehicle, and robotics projects, thereby creating a scalable revenue source. Since the beginning of 2026, Kingsoft has begun deploying AI in game development and content generation, while the integration of MiMo and WPS has also commenced, including the combination of MiMo Claw with Kingsoft Office. A further concept is to combine MiMo, Kingsoft Cloud, and WPS into a full-stack AI solution for enterprise and public-sector customers, providing models, computing power, private deployment, document workflows, enterprise knowledge, and access governance; this solution remains at the exploratory stage. Management divides office applications into a three-tier growth framework. The first tier is basic document and content services: WPS Office benefits from mobile distribution, domestic substitution, and a freemium model, while AI services have been progressively integrated at scale since 2023. Overseas revenue currently still accounts for a single-digit percentage of total revenue but is growing rapidly, with a key competitive advantage being pricing at approximately one-quarter to one-third that of Microsoft Office. The second tier is office collaboration, where WPS 365 revenue grew by more than 60% YoY in 2Q26. Its competitors include Teams, WeCom, and DingTalk, but it focuses more on enterprise and government customers, private deployment, and complex document processing. The third tier is AI agents, where the consumer-oriented Lingxi and enterprise-oriented WPS Comate compete with products such as WorkBuddy and QwenWork. The new product launched in July focuses on document processing, computation, and presentations and has integrated MiMo capabilities. Due to high token costs, Kingsoft will not promote Lingxi to WPS users on a large scale in the near term, instead prioritizing an appropriate monetization model and deeper MiMo integration to provide more cost-effective AI services. The gaming business is the main source of recent pressure. Gaming revenue declined 19% YoY in 1H26, and management expects the segment to record a loss in 2026. The YoY revenue decline is expected to widen further in 3Q26, with overall pressure potentially persisting for two to three quarters. The report traces the problem to strategic resource misallocation in 2025: the company continued investing in the underperforming Mecha BREAK, did not sufficiently reduce headcount, and saw the user experience of its core JX series deteriorate. Subsequent strategies include continuing to operate the evergreen JX3 IP and advancing JX3 2.0 through visual-quality improvements and a stable supply of content; using AI to reduce trial and error and improve production efficiency, with one new game developed by a team of approximately 20 R&D personnel scheduled to launch by year-end; and implementing multi-tier product operations, including taking the high-DAU, low-ARPU Goose Goose Duck overseas next year and launching two Angry Birds-related games, with the classic-return version scheduled to launch alongside the film in December. Accordingly, the report believes the gaming business could reach a turning point in 2027, but delivery depends on updates to the core IP and the performance of the new-product pipeline. The cloud infrastructure business is shifting from traditional cloud services toward intelligent computing power and MaaS. Kingsoft Cloud focuses on serving medium-sized enterprises in AI, robotics, and intelligent driving and is pursuing higher-margin MaaS opportunities. Demand comes from both Xiaomi and Kingsoft's internal ecosystems as well as non-ecosystem customers. Kingsoft Cloud's revenue grew 34% YoY in 1H26, while non-GAAP operating profit turned positive, indicating simultaneous revenue growth and profitability improvement. The shareholder return framework consists of three drivers: growth in the fundamental value of each core asset, incremental value created by AI ecosystem synergies, and the potential narrowing of the holding company discount. At market prices, Kingsoft's 51.4% stake in Kingsoft Office is valued at HK$64.2bn, its 33% stake in Kingsoft Cloud is valued at HK$8.2bn, and parent-company cash totals HK$13.9bn. Together, these amount to approximately HK$86bn, equivalent to approximately HK$63/share and implying a holding company discount of approximately 70%. In terms of the shareholding structure, Lei Jun holds 12.7%, while Xiaomi recently increased its stake to 8.1% through open-market purchases. The report identifies Xiaomi's stake increase, ecosystem synergies, and discount narrowing as important components of the shareholder value framework but provides no rating or target price.

Analysis framework

Using the CFO meeting discussion as its primary information source, the report first identifies the main themes of the AI ecosystem and shareholder value, then analyzes the operating status and timeline of the office, gaming, and cloud businesses. The analysis uses YoY revenue, profitability changes, product launch schedules, and competitive positioning to validate segment trends, and estimates total asset value and the holding company discount by adding the market value of listed equity holdings to parent-company cash.

Methodology notes

• Event Trading and Behavioral FinanceEvent-driven analysis

  Tracking management meeting takeaways and forward-looking milestones

  Based on the CFO's statements at the Asia Leaders Conference, the report organizes business changes, product launch schedules, and potential inflection points to assess the operating trajectory over the next two to three quarters and into 2027.

• (Out-of-Vocabulary Method)

  Three-tier growth framework for office applications

  The report divides the office business into three tiers—basic document services, office collaboration, and AI agents—and respectively evaluates the existing user and monetization foundation, WPS 365 growth, and the cost and monetization feasibility of AI products.

• Valuation MethodNAV Net Asset Value Method

  Aggregation of the market value of core assets and the holding company discount

  The report values the stakes in Kingsoft Office and Kingsoft Cloud at market prices and adds parent-company cash, deriving a total asset value of approximately HK$86bn, an asset value of approximately HK$63/share, and a holding company discount of approximately 70%.

Asset mapping & comparison

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

• Kingsoft (03888.HK)

  The report's primary research subject and the holding platform for office, gaming, and cloud assets.

  Strengths

  Owns office software, gaming, and cloud computing assets and can connect models, computing power, automobiles, robotics, and enterprise office scenarios through the Xiaomi ecosystem; core assets and cash total approximately HK$86bn.

  Weaknesses

  The gaming business faces near-term revenue declines and is expected to record a loss, while AI agents remain affected by high token costs and an undetermined monetization model.

  Comparison

  WPS overseas pricing is approximately one-quarter to one-third that of Microsoft Office; WPS 365 places greater emphasis on enterprise and government customers, private deployment, and complex document capabilities.

  Risks

  The gaming business will remain under pressure for the next two to three quarters, and the 2027 recovery depends on the delivery of JX3 2.0 and the new-product pipeline.

• Kingsoft Office

  A core asset in which Kingsoft holds a 51.4% stake, supporting three tiers of growth: basic office services, WPS 365 collaboration, and AI agents.

  Strengths

  WPS 365 revenue grew by more than 60% YoY in 2Q26, while WPS Office benefits from mobile distribution, domestic substitution, a freemium model, and pricing advantages.

  Weaknesses

  Overseas revenue still accounts for a single-digit percentage, and AI agents have not yet been promoted on a large scale due to high token costs.

  Comparison

  Overseas pricing is approximately one-quarter to one-third that of Microsoft Office; compared with Teams, WeCom, and DingTalk, WPS 365 places greater emphasis on private deployment and complex documents.

  Risks

  The monetization models of Lingxi and WPS Comate, as well as their deeper integration with MiMo, remain to be validated.

• Kingsoft Cloud

  A core asset in which Kingsoft holds a 33% stake, transitioning toward intelligent computing power and MaaS while serving Xiaomi and external customers.

  Strengths

  Revenue grew 34% YoY in 1H26, non-GAAP operating profit turned positive, and demand spans enterprises in AI, robotics, and intelligent driving.

• Xiaomi

  Kingsoft's strategic shareholder, AI collaboration partner, and Kingsoft Cloud ecosystem customer, which recently increased its stake to 8.1%.

  Strengths

  Generates computing power demand from model, new energy vehicle, and robotics projects and participates in exploring full-stack AI synergies among MiMo, Kingsoft Cloud, and WPS.

Key data

• WPS 365 Revenue GrowthMore than 60% YoY growth in 2Q26Key evidence of growth in the office collaboration tier
• Overseas Office Business Revenue ContributionSingle digitsStill a low percentage of total revenue, but growing rapidly
• WPS Overseas PricingApproximately one-quarter to one-third of Microsoft Office's pricingOverseas pricing competitiveness highlighted in the report
• Gaming RevenueDown 19% YoY in 1H26The segment is expected to record a loss in 2026, with the YoY decline expected to widen further in 3Q26
• Period of Pressure on the Gaming BusinessThe next two to three quartersThe report sees a potential turning point in 2027
• Kingsoft Cloud RevenueUp 34% YoY in 1H26Non-GAAP operating profit turned positive during the same period
• Combined Value of Core Assets and CashApproximately HK$86bnHK$64.2bn value of the Kingsoft Office stake, HK$8.2bn value of the Kingsoft Cloud stake, and HK$13.9bn of parent-company cash
• Per-Share Asset Value and Holding Company DiscountApproximately HK$63/share; approximately 70% discountCalculated based on the market prices of core assets and parent-company cash
• Major Shareholder StakesLei Jun 12.7%; Xiaomi 8.1%Xiaomi recently increased its stake to 8.1% through open-market purchases

Impact & implications

The report believes Kingsoft's medium-term value drivers include the monetization of office collaboration, exploration of AI agents, growth in Kingsoft Cloud's intelligent computing power and MaaS businesses, and model, computing power, and application synergies with the Xiaomi ecosystem. Revenue growth and positive operating profit in the cloud business provide evidence of improvement, while the value of core assets and cash underpin the shareholder return framework. However, losses in the gaming business and the high token costs of AI agents mean these structural opportunities will remain constrained in the near term by segment pressure and monetization uncertainty.

Risks

• The gaming business will remain under pressure for the next two to three quarters, is expected to record a loss in 2026, and is expected to see a wider YoY revenue decline in 3Q26.
• AI agents face high token costs, Lingxi has not yet been promoted to WPS users on a large scale in the near term, and an appropriate monetization model remains to be confirmed.

What to watch

• Monitor whether WPS 365 can sustain its growth, as well as further integration of Lingxi and WPS Comate with MiMo and progress in monetization.
• Monitor JX3 2.0, the new game scheduled to launch by year-end, the Angry Birds-related products in December, and the gaming business's potential recovery in 2027.
• Monitor the overseas launch of Goose Goose Duck next year and progress in its high-DAU, low-ARPU operating model.
• Monitor demand for Kingsoft Cloud's intelligent computing power and MaaS, expansion among non-ecosystem customers, and whether positive non-GAAP operating profit can be sustained.