Xiaomi's Pricing Power Play: Higher Phone Prices, Lower Volumes — and a Stock That Won't Stop Climbing

Xiaomi's Q2 net profit fell 42.6%, but shares rallied 6.8% on strong EV growth, record ASPs, and a raised delivery target, signaling market focus on long-term strategy.

Investors have spent the past week doing something that looks, on the surface, deeply contradictory: watching Xiaomi's second-quarter net profit collapse by 42.6 percent and pushing the stock higher anyway. The shares closed Thursday at 3.05 euros, up 0.8 percent on the day and 6.8 percent higher on the week, extending a rally that has now lifted the Hong Kong-listed stock nearly 20 percent since the end of June.

The disconnect is not a sign of market irrationality. It reflects a shift in how the market is valuing the Chinese consumer electronics giant — less on what the income statement said about the past three months, and more on whether management is steering the company through a brutal cost environment with its long-term strategy intact.

The Numbers Look Worse Than They Are

Xiaomi reported its second-quarter 2026 results on August 18, and the headline figures were unsparing. Revenue came in at 108.9 billion yuan, down 6.1 percent year over year, while adjusted net profit fell to 6.2 billion yuan — a 42.6 percent plunge. Sequentially, revenue actually rose 9.9 percent, but that offered cold comfort against the year-ago comparison.

The smartphone business, still the company's core engine, bore the brunt of the damage. Segment revenue declined 7.5 percent to 42.1 billion yuan, with worldwide shipments falling 26.5 percent to 31.2 million units. Gross margin in the division held at 8.5 percent — a figure that looks thin but was achieved while memory component costs sat at historically elevated levels.

The more revealing metric is what happened to pricing. The average selling price per device climbed roughly 300 yuan year over year, a record, according to CFO William Lu — an increase of 26 percent on a like-for-like basis. Xiaomi is not simply absorbing higher input costs; it is attempting to pass them through to consumers. Whether that is a durable strategic shift toward premium positioning or a temporary response to external cost pressure is the question hanging over the stock.

A Robot, a Ranking, and a Growing Ecosystem

While the core handset business struggles with volume, Xiaomi is leaning harder into its adjacent bets. The smart EV and new initiatives segment grew revenue 17.1 percent to $3.7 billion, with electric vehicle sales alone contributing $3.5 billion against an operating loss of $385 million. Despite that red ink, management raised its full-year 2026 EV delivery target to 550,000 vehicles after handing over 104,199 units in the quarter — an aggressive call that signals confidence in demand rather than capitulation to losses.

The broader ecosystem continues to expand. Xiaomi now counts 1.161 billion connected devices on its AIoT platform, with 766.5 million monthly active users. President Lu Weibing confirmed on the earnings call that the company's robot will make its public debut at the World Robot Conference in Beijing, running from August 19 to 23, with intelligent manufacturing as the first deployment arena.

On the artificial intelligence front, Xiaomi's MiMo V2.5 model took first place in the global ranking for open-source models in August, with usage volume sextupling in two months. The company is already monetizing the model through API calls and token plans — early evidence that its AI investments can generate revenue rather than remain a cost line.

Research and development spending rose 19 percent to 9.2 billion yuan, while capital expenditures reached 3.6 billion yuan. That investment intensity is part of the reason profits are under pressure, but it is also the foundation of the future-growth narrative investors are buying into.

What the Analysts See

Nomura weighed in on Wednesday with a "Neutral" rating, acknowledging that revenue beat consensus thanks to higher smartphone ASPs and stronger IoT sales. But the house also flagged a gross margin of 19.8 percent, below the 20.4 percent the market had expected. A neutral stance after a quarter like this is telling: even analysts who recognize the positive elements in the numbers are not ready to call the stock a buy.

The market context adds another layer. Xiaomi's global smartphone market share stood at 11.5 percent in the quarter — third place behind Samsung's 22.3 percent and Apple's 20.3 percent, and the 24th consecutive quarter in the top three. That stability matters, even as volumes shrink.

Supporting the share price from below is an aggressive buyback program. Through August 13, Xiaomi had repurchased roughly 377.5 million shares worth 11.7 billion Hong Kong dollars in 2026 — a mechanism that props up the stock independent of operational performance.

The Chart Tells a Cautious Story

At 3.14 euros in recent trading, the stock sits 8.5 percent above its 50-day average but remains 13 percent below its 200-day average. The shares are still roughly 53 percent off their 52-week high of 6.54 euros, set in September 2025. The recovery of recent weeks has not yet broken the longer-term downtrend that followed four consecutive losing quarters, driven by weak smartphone demand and high component costs.

The picture that emerges is of a company managing two competing realities. The handset business is selling fewer units at higher prices, with margins squeezed by memory costs and the EV division burning cash even as it scales. Meanwhile, the ecosystem around those businesses — connected devices, AI models, robotics — is growing in ways that suggest the smartphone is becoming one node in a much larger network rather than the whole story.

Whether the premium pricing strategy sticks with consumers, and whether the EV business moves closer to breakeven, are the questions that will define the next few quarters. For now, the market has chosen to focus on the trajectory rather than the trailing numbers — a bet that Xiaomi is building toward its next growth phase, not merely managing its way through a difficult one.