Xiaomi’s chief executive has warned that pressure on profit margins will persist for at least two more years, as the Chinese tech group wrestles with a fivefold surge in smartphone memory costs and an electric-vehicle division that is burning more than $5,600 on every car it delivers. The stock, which closed at €2.46 on Friday after touching a fresh 52-week low of €2.34, has shed nearly half its value since the start of the year.
The source of the pain is structural. The artificial-intelligence boom has sucked up supplies of high-bandwidth memory, forcing Samsung, SK Hynix and Micron to redirect production toward more lucrative AI chips. Standard DRAM for smartphones and household appliances has become scarce and expensive. Xiaomi president Lu Weibing disclosed that memory prices have surged fivefold since the third quarter of 2025, while costs for TV display memory have multiplied by ten. Counterpoint Research analysts expect the shortage to persist into late 2027.
The impact on Xiaomi’s core business has been brutal. In the first quarter of 2026, adjusted net profit tumbled 43 per cent to 6.1 billion yuan, missing analyst expectations of 6.4 billion yuan. Smartphone shipments dropped 19.2 per cent year on year to 33.8 million units — the steepest decline among the world’s top five handset makers. Roughly two-thirds of Xiaomi’s devices sell for under $200, making the price of components a direct hit on margins that leaves little room for error.
Goldman Sachs expects the second quarter to be even worse. The bank forecasts adjusted net profit of just 5.4 billion yuan — half the year-earlier figure — and has trimmed its full-year earnings estimate by 12 per cent to 32.8 billion yuan. Yet it maintains a buy rating with a 12-month price target of 40 Hong Kong dollars, betting on a turnaround from the third quarter. Jefferies takes the opposite view: it downgraded the stock to underperform with a target of 25.49 Hong Kong dollars, flagging that rising memory costs will keep weighing on both gross margins and delivery volumes.
Should investors sell immediately? Or is it worth buying Xiaomi?
Short sellers have seized on the vulnerability. Bearish positions now account for roughly 9 per cent of the free float. A buyback programme of up to 20 billion Hong Kong dollars, launched on June 2, has failed to stem the slide; even a 7.8 million share repurchase on June 11 could not prevent the stock from closing at a 52-week low. The relative strength index stands at about 20, deep in oversold territory — but oversold has not meant cheap for this stock.
The electric-vehicle division, once touted as Xiaomi’s growth engine, is compounding the strain. The car unit generated 19.9 billion yuan in revenue in the first quarter but recorded an operating loss of 3.1 billion yuan, equivalent to a loss of roughly $5,600 per vehicle delivered. For 2026, Xiaomi aims to deliver 550,000 cars. By the end of May it had handed over 150,317 units, meaning it must average about 57,500 cars a month from June to December — nearly 15 per cent more than its current monthly record of 50,000.
The company received regulatory approval in China for its first hybrid model, the Kunlun N3, but the segment is not without risk. Sales of this specific type of hybrid vehicle plunged by nearly a quarter in May. Xiaomi continues to spend heavily on research and development, which rose 33.4 per cent to 9 billion yuan in the first quarter. It plans to invest 60 billion renminbi in artificial intelligence over the next three years, with roughly 16 billion allocated for 2026 alone. HyperOS 4, the latest version of its operating system, is set to launch in China in July or August.
All eyes are now on the second-quarter earnings report due August 26. If the Goldman Sachs forecast proves accurate, the stock will face another severe test. Until the memory cost crisis eases — and most analysts say that will not happen before 2028 — the buyback alone looks too slender a reed to halt the downward momentum.
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