Xiaomi’s Profit Plunge and Smartphone Target Cut Expose the Cost of the AI Boom

Xiaomi cuts 2026 smartphone target to 95M units, operating profit plunges 60% amid memory chip shortages and EV losses, while investing heavily in AI.

The scramble for artificial-intelligence chips is reshaping the semiconductor supply chain, and smartphone makers are feeling the pinch. Xiaomi, the world’s third-largest handset vendor, has slashed its 2026 shipment target from 135 million to 95 million units — a reduction of nearly 30%. Analysts at Counterpoint Research expect the global smartphone market to shrink this year as memory chips are diverted to AI servers, driving up the cost of system processors.

The damage to Xiaomi’s bottom line was laid bare in its first-quarter results. Operating profit tumbled roughly 60% to 5.3 billion renminbi, down from 13.1 billion a year earlier. Revenue slid 11% to 99.1 billion yuan. The smartphone segment, which generated 44.3 billion renminbi in revenue during the period, shipped 33.8 million units — a 19% drop from 41.8 million a year ago. Management expects memory-cost pressure to persist until at least 2027, and possibly into 2028.

The company’s electric-vehicle division only added to the losses. It posted an operating deficit of 3.1 billion renminbi in the first quarter. With 80,856 vehicles sold, that equates to roughly $5,600 in red ink per car. Xiaomi is targeting 550,000 EV deliveries for the full year, meaning it will need to accelerate production significantly in the remaining quarters.

To counter these headwinds, Xiaomi is pouring capital into artificial intelligence. It plans to invest at least 16 billion renminbi in AI this year and more than 60 billion over the next three years, channelling funds into smart manufacturing and its own EV ambitions. The company’s proprietary AI models are gaining traction — monthly usage is rising 195% — and the broader ecosystem now encompasses 1.1 billion connected devices.

On the product front, Xiaomi is pushing beyond smartphones. A new network storage series will launch in China via crowdfunding starting July 1, 2026, and the company will make its debut at IFA Berlin in September, showcasing storage solutions. Separately, it unveiled the Redmi K90 Ultra, a gaming handset with an active air-cooling system that cuts temperature by 10°C in 100 seconds, though the device is limited to the Chinese market for now.

The stock market has been unforgiving. Xiaomi has spent 8.4 billion Hong Kong dollars on share buybacks since the start of the year, yet the shares continue to hover near the 52-week low of 2.34 euros. At around 2.45–2.46 euros, the equity has lost more than 45% of its value year-to-date and trades roughly 39% below its 200-day moving average. Technical readings underscore the rout: the relative strength index registered 20.6 by one measure and 20.1 by another, both signaling deeply oversold conditions. The next major catalyst for investors will be the quarterly report due in August 2026.