Kingsoft Cloud’s AI cloud transition is beginning to deliver, with MaaS bringing further upside

Overview

This report is Morgan Stanley’s research material on Kingsoft Cloud Holdings, with the core view that the company’s transition to AI cloud is beginning to show results. The report emphasizes that Kingsoft Cloud is no longer merely a midstream commodity cloud player, but is gradually establishing itself as an AI cloud platform amid AI compute shortages, rising GPU inference demand, and expanding MaaS customer demand.

Core views

The core views include: first, AI is a more important revenue driver than traditional cloud, with AI cloud revenue growing at a high double-digit rate; second, rising cloud prices are driven by computing demand, benefiting GPU resource monetization; third, support from the Xiaomi and Kingsoft Group ecosystem strengthens the customer base and demand visibility; fourth, as the business model shifts, the company’s gross margin and EBITA margin are expected to improve toward industry leaders.

Analysis framework

The report analyzes the company from six angles: business transformation, revenue mix, ecosystem support, industry pricing changes, margin trajectory, and relative valuation. Valuation uses a 2027 EV/EBITDA multiple and compares at a discount to U.S. neocloud peers to reflect lower return on assets and uncertainty around supply chain availability.

Methodology notes

• Valuation methodsEV/EBITDA Relative Valuation

  Assessing company value based on the expected 2027 EV/EBITDA multiple.

  The report’s base-case scenario uses 5.5x 2027 EV/EBITDA, below the average of 13x and median of 10x for U.S. neocloud peers, mainly due to lower returns on assets and greater uncertainty around supply chain availability.

• Industry ComparisonMargin Benchmarking

  Comparing Kingsoft Cloud’s gross margin and EBITA margin improvement path with industry leaders such as Alibaba Cloud.

  The report believes that under the new business model, a higher share of AI cloud and MaaS revenue is likely to drive margin expansion.

Asset mapping & comparison

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

• Kingsoft Cloud Holdings (KC.O)

  Core covered target

  Strengths

  Rapid AI cloud revenue growth, with MaaS and GPU inference clusters creating new revenue sources, supported by the Xiaomi and Kingsoft Group ecosystem.

  Weaknesses

  Still a niche player relative to hyperscale cloud providers, with uncertainty around returns on assets and supply chain availability.

  Comparison

  Valuation multiples trade at a clear discount to the average and median of U.S. neocloud peers; the margin improvement path is benchmarked against industry leaders such as Alibaba Cloud.

  Risks

  Constrained GPU supply, rising financing costs, and slower-than-expected development of domestic AI models.

• Kingsoft Corp Ltd

  Ecosystem-related party

  Strengths

  Provides ecosystem and customer demand support for Kingsoft Cloud.

  Weaknesses

  The report does not provide an independent investment conclusion for this company.

  Comparison

  It is related to Kingsoft Cloud through ecosystem and business synergies, but is not the core valuation target of this report.

  Risks

  If ecosystem demand falls short of expectations, it would weaken confidence in Kingsoft Cloud’s AI cloud transition.

• Xiaomi ecosystem

  Demand anchor / ecosystem support

  Strengths

  Provides foundational demand for AI training, inference, and ecosystem customer expansion.

  Weaknesses

  Dependent on ecosystem customers and progress in AI models.

  Comparison

  Compared with small and mid-sized cloud providers lacking ecosystem entry points, Kingsoft Cloud has clearer internal demand support.

  Risks

  If Xiaomi’s AI model development underperforms expectations, upside potential would be affected.

Key data

• RatingOverweightMorgan Stanley recently initiated coverage on Kingsoft Cloud.
• Target PriceUS$15The target price history shows a target price of 15 as of 2026-07-07.
• Current PriceUS$9.44The disclosure page OCR shows a USD basis, and the table contains recognition noise.
• Base-case valuation multiple5.5x 2027e EV/EBITDAAssigned at a discount to the 13x average and 10x median of U.S. neocloud peers.
• Traditional cloud market shareApproximately 3-4% of China public cloud IaaS/PaaSThe table shows the company was a niche player in the traditional cloud era.
• AI cloud revenue growthHigh double-digit growthThe report states that AI cloud is the more important revenue driver.
• Long-term gross margin target/potential15%+The table mentions mid-level margins in the AI era, with a long-term level above 15%.

Impact & implications

If AI cloud demand continues and GPU supply can meet customer needs, Kingsoft Cloud may transition from a low-margin commodity cloud provider into an AI compute platform, driving simultaneous recovery in revenue growth, margins, and valuation multiples. For investors, the key is not traditional cloud share itself, but the proportion of AI revenue, compute supply capability, ecosystem customer conversion, and changes in funding costs.

Risks

• AI GPU demand intensity may fall short of expectations.
• Supply-side constraints may lead to insufficient procurement of GPUs or related equipment.
• Interest rates may come in higher than expected, raising financing costs and suppressing returns.
• China’s AI model development may be slower than expected.
• AI cloud pricing or utilization may be lower than expected, affecting margin improvement.
• Investment banking and research disclosures indicate Morgan Stanley has business relationships with some covered companies, and investors should be aware of potential conflicts of interest.

What to watch

• Whether the share of AI cloud revenue and its high double-digit growth can be sustained.
• GPU compute supply, procurement progress, and utilization rates.
• MaaS customer expansion and contributions from external LLM customers.
• Development of Xiaomi’s AI models and the release of ecosystem demand.
• Whether gross margin and EBITA margin expand in line with the report’s expectations.
• Whether rising cloud computing prices continue.
• The impact of funding costs and interest rate changes on returns.