Xiaomi’s Software Supremacy Clashes With a Steep Profit Slide and AI Spending Splurge

Xiaomi's Q1 earnings show revenue down 10.9% and net income slumping 43.1%, as smartphone woes offset faster Android 17 rollout and EV growth; stock now 30.72% lower YTD.

Xiaomi is rolling out Android 17 faster than Samsung, yet its stock slipped 2.19% on Friday to €3.00. That disconnect between operational momentum and market sentiment captures the tension running through the Chinese tech giant as it navigates a shrinking core business and a multi-billion-dollar gamble on electric vehicles and artificial intelligence.

The numbers from the first quarter of 2026 paint a stark picture. Revenue fell 10.9% year-on-year to 99.1 billion yuan, while adjusted net income slumped 43.1% to 6.072 billion yuan. When the results landed in May, the stock plunged 4.57% in Hong Kong to HK$28.4. The downward pressure has only intensified since: shares are now 30.72% lower than at the start of the year, and more than 54% below the 52-week peak of €6.51 hit in September 2025.

At the heart of the slowdown is the smartphone business. Revenue from handsets and AIoT devices contracted 14.5% to 79.277 billion yuan, with smartphone shipments collapsing 19.2%. Gross margin in the mobile segment shrank from 12.4% to 10.1% as Xiaomi fought harder on price in a brutally competitive market. Even a record average selling price of 1,310 yuan and a 23.5% share of premium devices could not stem the margin erosion.

The bright spot is the electric-vehicle and AI division, which grew revenue 6.9% to 19.864 billion yuan on deliveries of 80,856 cars. But that expansion comes at a cost: the segment posted an operating loss of 3.1 billion yuan as the company scales up production capacity in Beijing and Wuhan before economies of materialise. Xiaomi is also preparing to enter the extended-range EV market with the "SkyNomad" series, a push aimed at easing range anxiety and securing the aggressive delivery targets set for 2026.

On the software front, Xiaomi is outpacing rivals by becoming one of the first manufacturers globally to ship a stable version of HyperOS 3.3, built on Android 17, to its flagship 17-series devices. The move underpins the "Human x Car x Home" ecosystem strategy, linking the smartphone to the car and the home. Yet the market has barely acknowledged the feat: the stock currently sits 21.57% below its 200-day moving average of €3.82. For investors, operational prowess and share-price strength are moving in opposite directions.

The aggressive innovation cycle carries a flip side. Xiaomi has officially ended software support for ten more models, including the Xiaomi 12 series and several POCO devices. While this policy forces customers toward newer, higher-margin hardware, it also pushes R&D spending higher. Research outlays surged 33.4% to 9 billion yuan in the first quarter, and the company plans to invest at least 16 billion yuan in AI over the full year, with more than 60 billion yuan earmarked across a three-year horizon. A tangible outcome is the MiMo-V2.5-Pro language model, which ranks first among open-source models on the Artificial Analysis platform. To compete with DeepSeek V4-Pro, Xiaomi slashed API prices by up to 99%.

The financial firepower to sustain this spending remains formidable. Total cash holdings exceed 220 billion yuan, and the company has already repurchased over HK$8 billion worth of its own shares, with a new buyback program of up to HK$20 billion in place. The board is scheduled to approve the unaudited first-half results on August 18.

Xiaomi is also doubling down on its European ambitions. The group will make its first appearance at IFA in Berlin this September, signalling a push to export its AI-driven ecosystem beyond China’s borders. The reputation push comes amid a legal sideshow: a Chinese court sentenced a blogger to 20 months in prison and a 100,000 yuan fine for distributing a fake crash-test video of the SU7 electric SUV, falsely claiming doors wouldn’t open and emergency calls failed.

Technically, the stock has recovered 28.11% from its 52-week low of €2.34, and the relative strength index of 60.4 points to neutral-to-slightly-bullish territory without being overbought. But the overarching chart pattern remains bearish. Market capitalisation stands at €75.04 billion, reflecting the group’s heft, but not the confidence of international investors. Selling pressure from the fading handset cycle, the cash drain of EV production, and a price war in China’s EV market all weigh on sentiment.

Xiaomi’s dilemma is neatly captured in that Friday share price: a company sprinting ahead on software and electric mobility, yet unable to convince investors that the story has changed. The IFA stage in September may offer a chance to reframe the narrative—or merely highlight how wide the gap between execution and valuation has become.