A Dual Upgrade Signals Xiaomi’s Strategic Pivot Gains Traction

Xiaomi KYG9830T1067

In a significant vote of confidence, two of the world's premier credit rating agencies have independently raised their assessments of Chinese technology giant Xiaomi within days of each other. This dual endorsement highlights a corporate transformation, driven notably by a business unit once viewed as its most speculative venture. The moves by S&P Global and Fitch prompt a key question for investors: is the market poised to revalue Xiaomi's equity on a more permanent basis?

The upgraded outlooks are firmly rooted in the company's latest financial results. For the third quarter, Xiaomi reported an adjusted net profit surge of 81% year-over-year, reaching 11.3 billion RMB. This robust earnings growth provided a solid foundation for the rating actions.

Key Developments:
* Credit Recognition: Fitch Ratings elevated Xiaomi's rating to "BBB+" on December 4, while S&P Global revised its outlook to "Positive" on December 8.
* Profitability Milestone: The company's electric vehicle (EV) division reported its first-ever quarterly profit.
* Strong Balance Sheet: The firm ended Q3 with substantial cash reserves of nearly 237 billion RMB.

The EV Bet Reaches an Inflection Point

Market observers expressed considerable doubt when Xiaomi announced its foray into the intensely competitive electric vehicle sector. Recent operational data, however, has countered that skepticism decisively. The Smart EV segment crossed into profitability during Q3 2025, achieving this milestone well ahead of many expert forecasts. With an operating profit of 700 million RMB and deliveries skyrocketing by over 173% to approximately 109,000 vehicles, the division is validating Xiaomi's strategic diversification.

Credit analysts explicitly cited this progress. Fitch attributed its upgrade to enhanced profitability in the automotive business coupled with robust cash generation from Xiaomi's established Internet of Things (IoT) ecosystem. S&P Global's subsequent outlook revision echoed this positive assessment of the company's evolving profile.

Share Price Divergence Amid Fundamental Strength

Despite these operational successes, Xiaomi's shares have experienced a notable correction. Recently closing at 4.72 euros, the stock trades roughly 33% below its 52-week high of 7.07 euros, marked in March. The current price also sits below the 200-day moving average of 5.68 euros, underscoring the recent downward trend.

This market movement stands in contrast to the company's formidable financial position. Management is leveraging its strong liquidity and the lower share price to authorize buybacks, repurchasing over 600 million HKD worth of its own stock in early December alone. Fitch further anticipates that Xiaomi will generate an annual free cash flow exceeding 15 billion RMB in the coming years, which should continue to reinforce its balance sheet.

Acknowledging Persistent Market Headwinds

Investors are advised to weigh the positive rating changes against ongoing sector risks. The broader Chinese automotive market displayed signs of softness in November. Furthermore, within Xiaomi's core smartphone business, margin pressures are emerging. Company President Lu Weibing has already cautioned about rising memory chip costs, which threaten to increase device prices. Consequently, Fitch forecasts a slight decline in smartphone shipments and contracting margins for this segment in 2026.

Investment Perspective

The twin upgrades affirm that Xiaomi is successfully executing its transition from a smartphone-centric manufacturer to a diversified technology conglomerate. A notable valuation gap has opened between the company's strengthening fundamentals and its current share price of 4.72 euros. This disconnect may present an opportunity for contrarian investors, provided the stock finds support near its 52-week low.

The consensus view among market analysts, reflected in an average price target equivalent to over 50 CNY (approximately 6.50 euros), suggests significant potential upside remains. The sustainability of the positive trend in the automotive business will be a critical focus when the company releases its next quarterly results on March 23, 2026.