Xiaomi's Crossroads: Record Profits Meet Supply Chain Headwinds

Xiaomi's 2025 results show strong revenue growth and first EV profit, but smartphone margins are squeezed. The company is investing heavily in AI to drive its future.

Xiaomi's 2025 financial results present a tale of two trajectories. While the company celebrated landmark achievements, including its first profitable quarter for electric vehicles and a massive commitment to artificial intelligence, its core smartphone business faced margin pressure. This mixed performance is reflected in the stock, which trades approximately 20% below its level at the start of the year.

A Billion-Dollar Bet on Artificial Intelligence

Alongside its automotive progress, Xiaomi is channeling significant resources into artificial intelligence as a core strategic pillar. The company has committed to investing no less than 60 billion RMB in AI research over the coming three years. This forms part of a broader five-year research and development budget totaling 200 billion RMB.

This investment is already materializing in products. The company has launched its MiMo-V2-Pro large language model, which features one trillion parameters and ranks within the global top ten on standard benchmarks. Furthermore, a beta version of MiClaw is in testing. This AI agent is designed to operate across ecosystems, providing integrated control for smartphones, smart home devices, and vehicles.

Smartphone Margins Squeezed by Component Costs

The transition is not without its challenges, particularly in Xiaomi's traditional hardware division. During the first quarter of 2026, increasing prices for DRAM and NAND memory chips exerted noticeable pressure on profitability. In response, the company implemented moderate price increases for select models in the Chinese market—a strategic move aimed at protecting margins that could potentially impact sales volume.

A key question for investors is whether the strong performance in other segments can offset this smartphone margin compression. The company's internet services division set a new revenue record of 37.4 billion RMB in 2025. Combined with the now-profitable EV unit, these businesses may provide a counterbalance. Market uncertainty regarding this exact equilibrium appears to be priced into the equity, with shares currently trading about 27% below their 200-day moving average.

Electric Vehicle Division Turns a Corner

The most striking development in the annual report was the performance of the electric vehicle (EV) business. After years of substantial upfront investment, this segment reported its first-ever operating profit of 0.9 billion RMB, achieved on divisional revenue of 106.1 billion RMB. This milestone, reached faster than many market experts anticipated, demonstrates the emerging viability of Xiaomi's automotive ambitions.

The momentum appears to be building. The successor to the SU7 model, launched in March 2026, garnered over 30,000 firm orders within its first 72 hours of availability.

Overall, Xiaomi's 2025 revenue surged by 25% to reach 457.3 billion RMB. Even more impressive was the growth in adjusted net income, which jumped 43.8% to 39.2 billion RMB.