Xiaomi's Premium Pivot: How a 26% Shipment Decline Became a Bullish Signal

Despite Q2 profit drop, Xiaomi's stock gains on record ASP, easing memory costs, and surging EV deliveries, signaling a strategic shift.

The arithmetic looks brutal on paper. Xiaomi's second-quarter revenue slipped 6.1 percent to 108.922 billion yuan, adjusted net profit cratered 42.6 percent to 6.22 billion yuan, and smartphone shipments collapsed by 26.5 percent to 31.2 million units. Yet the stock has climbed roughly 8 percent since the numbers landed on Tuesday. The market, it seems, is reading a different story between the lines — one that hinges on pricing power, falling memory costs, and an electric vehicle business that is finally pulling its weight.

The Premium Shift That Changes the Math

The headline shipment figure masks a transformation in what Xiaomi actually sells. The average selling price for its handsets hit a record 1,351 yuan, up 25.9 percent year on year. In China, 32.1 percent of smartphone sales now come from devices priced above 3,000 yuan — an all-time high and a 4.5 percentage point improvement. In the 3,000 to 4,000 yuan bracket, Xiaomi's market share reached 16.2 percent. The company is selling fewer phones, but they are meaningfully more expensive ones, and that mix shift is the crux of the bull case.

The profit squeeze, meanwhile, has a clear culprit. Xiaomi president William Lu told analysts on the earnings call that memory chip costs exceeded the company's own expectations during the quarter, a headwind that has hit the entire global smartphone market — industry-wide shipments fell 6 percent partly due to storage pricing. Crucially, Lu indicated the pace of price increases is already decelerating and should ease further in the second half. If that holds, the single biggest drag on margins begins to lift.

Goldman Sachs Calls the Bottom

Wall Street is buying the recovery narrative. Goldman Sachs reaffirmed its "Buy" rating on Wednesday and raised its gross margin estimates for the smartphone business across 2026 through 2028. The bank's analysts see margins bottoming in the third quarter of 2026 before staging a recovery — a view that aligns neatly with management's own guidance on memory costs.

The market response was immediate. The stock jumped 7.5 percent to 3.01 euros on Wednesday, following Tuesday's close at 2.80 euros. That rally extended a move that began after the earnings release, leaving the shares up around 8 percent from their pre-results level.

EVs Take Over as the Growth Engine

While the core handset business contracts, Xiaomi's electric vehicle arm is compounding at a rapid clip. EV revenue rose 17.1 percent to 24.9 billion yuan, with vehicle deliveries up 28.2 percent to 104,199 units in the quarter. On Monday, cumulative deliveries of the SU7 sedan crossed the 500,000 mark, prompting Xiaomi to raise its full-year 2026 delivery target to 550,000 vehicles.

The segment remains loss-making — an operating deficit of 2.6 billion yuan in the quarter — but the trajectory is what matters. Xiaomi is increasingly an automaker with scale advantages rather than a handset vendor with an ecosystem bolted on. Whether EVs can fully offset the smartphone slowdown over the long term is the central question for the stock's valuation, but the growth rates suggest the auto division is increasingly carrying the load.

The company is also spending aggressively on the future. Research and development outlays rose 19 percent to 9.2 billion yuan, while capital expenditures reached 3.6 billion yuan — evidence that the margin pressure in the core business is not deterring investment in new frontiers.

A Side Show With Symbolic Weight

Elsewhere in Lei Jun's orbit, robotics firm Unitree Robotics made its Shanghai debut on Wednesday, surging as much as 630 percent intraday. Shunwei Capital, co-founded by the Xiaomi founder, was an early investor. It is not a direct value driver for Xiaomi shares, but it underscores how deeply embedded the company's ecosystem is in next-generation technology.

The Long Road Back

The stock still has ground to make up, trading roughly 30 percent below its level at the start of the year and 47 percent lower on a 12-month basis. The distance to the 52-week high of 6.54 euros remains substantial. The recent rally, however, looks less like a dead-cat bounce and more like a repricing of a narrative in which EVs replace smartphones as the primary growth engine just as the memory cost overhang begins to dissipate. Whether that story holds depends on the margin recovery materializing in the quarters ahead — and on Xiaomi's ability to keep selling ever more expensive phones to a market that is buying them.