Xiaomi after a 55% drop: time to get in, or are margins never coming back?
Xiaomi's profit fell 42 percent in the latest quarter and half the stock's value evaporated. But neither competitors nor management are to blame. Memory chips have roughly quadrupled in price since the start of 2025, driven by demand from data centers being built for artificial intelligence. Xiaomi is being held hostage by a market it can't reach.
Key points
Phone shipments fell 26 percent, while the average price hit a record 1,351 yuan.
Gross margin on phones is 8.5 percent. Two years ago it was half again as high.
The car division posted its second straight quarterly loss, this time 2.6 billion yuan.
To meet this year's target, Xiaomi would have to deliver 66,700 cars a month from now through December. In July it sold 31,267.
The stock is 55 percent below its peak, yet its price-to-earnings ratio has actually risen.
When Xiaomi $XIACY released second-quarter results after the Hong Kong close on August 18, adjusted net profit fell 42.6 percent and it missed consensus on both revenue and profit. The next day the stock jumped 6.8 percent to HK$27.96. So the market not only expected those numbers, it heard something it liked: a hint that memory cost pressure is starting to ease. Over the previous twelve months, the stock had dropped 48 percent, and from its June 2025 peak of HK$61.98 it's down 55 percent.
What's remarkable is what caused the fall. It's not a bad product, mishandled distribution, or customers defecting to rivals. Xiaomi has held third place in the global phone market for twenty-four straight quarters, has a record 766.5 million monthly active users, and the average price of its phones is the highest in company history. The share of models costing more than 3,000 yuan in Chinese shipments crossed 32 percent for the first time. The premium strategy Lei Jun has promised since 2020 is finally working.
And yet phone margins fell to 8.5 percent. The reason lies somewhere else entirely: memory chip prices, which the company president says have roughly quadrupled compared with the first quarter of 2025. Demand isn't from consumers but from AI data center operators buying capacity years ahead. Phone makers queue behind them and pay whatever is asked.
Xiaomi is the most vulnerable of all major players. According to Omdia analysts, more than half its shipments are models under $200, devices where an extra $20 chip decides whether making it makes sense at all. The company raised prices three times this year and still couldn't hold margin.
The whole investment case has shrunk to a single variable decided neither in Beijing nor at Xiaomi: when will memory prices fall, and what shape will the company be in by then?