Why Analysts Are Downgrading Xiaomi After Its 57% Profit Crash

The deepest miss was at the operating-profit level. CLSA had already warned that adjusted EBIT would likely fall 41% to around RMB 6.5 billion . When the actual print arrived, it confirmed that the miss was most acute in the EBIT line—exactly the metric that makes valuation models wobble .

Why Jefferies Made the Most Decisive Downgrade

The post-earnings reaction that drew the most attention came from Jefferies. The firm downgraded Xiaomi from Hold to Underperform and cut its price target from HK$26.98 to HK$25.49 . Jefferies gave three specific reasons for the move :

1. The Q1 2026 results missed expectations at the EBIT level, even though revenue was roughly in line with a lowered bar.
2. Market expectations had been running too high relative to the fundamental pressures Xiaomi was facing.
3. The electric-vehicle business introduced significant valuation pressure that the earlier Hold thesis could no longer absorb comfortably.

The HK$25.49 target implied a 14% downside from the stock's previous closing price, and Jefferies was not alone in feeling that the numbers demanded a more bearish stance .

The Broader Analyst Reset

Goldman Sachs had already reduced its Q1 revenue and profit forecasts by roughly 12% before the print, projecting RMB 98 billion in revenue and calling out that "the profit contribution from smart EV and other new businesses is expected to subside" . Post-earnings, the bank noted that gross margins had held up better than some feared, but the overall picture remained strained .

Across the full analyst consensus, the reset has been methodical and wide-reaching. The average price target slid from HK$40 to HK$30, and several major banks trimmed forecasts or ratings :

• Morgan Stanley kept its Overweight rating and HK$45 target but cautioned that memory costs rose more than anticipated and that smartphone margins would stay under pressure .
• JP Morgan cut its target from HK$45 to HK$38, reduced its core earnings estimates by 7–8%, and trimmed EV profit-margin assumptions by 150–200 basis points .
• HSBC reduced its target from HK$54 to HK$50 .
• Bocom International downgraded the stock to Neutral from Buy with a HK$37 target .

Despite the downgrades, the stock still carries a consensus Buy rating from 33 analysts, though the sliding targets suggest conviction is weakening .

What Crushed Xiaomi's Profits: The Headwind Stack

The negative results did not come from a single weak spot. They reflected a convergence of external shocks and internal transitions that hit simultaneously :

The memory chip cost surge

Sharp increases in DRAM and NAND prices squeezed smartphone margins much harder than management had signaled earlier in the year. The company's own HKEX filing cited this as a primary drag alongside broader commodity inflation . Xiaomi responded by deliberately cutting shipments of low-end models, which helped average selling prices but caused a 19% year-over-year drop in global smartphone shipments, according to IDC data cited by CLSA .

Weakening smartphone demand

A broader industry slump magnified the cost problem. Revenue from the Smartphone × AIoT segment fell 14.5% year-over-year, and competitors gained ground in several key markets . Morgan Stanley cut its global smartphone shipment forecast explicitly because of the margin and demand pressures Xiaomi was absorbing .

EV business drag

Xiaomi delivered roughly 79,000 vehicles in the first quarter . That represents less than 55% of the roughly 145,000-unit quarterly run rate it needed to meet its public target of 550,000 deliveries for the full year . While the SU7 model racked up more than 63,000 confirmed orders, plant capacity in Beijing remained the bottleneck . The EV unit generated about $2.8 billion in revenue but continued to weigh on overall profitability because of heavy R&D investment and still-thin margins .

Geopolitical and macro pressure

The official filing cited geopolitical uncertainties, intensifying industry competition, and the withdrawal of Chinese consumer subsidies as additional headwinds that clouded the near-term outlook .

Xiaomi's Strategic Counterpunch

Within hours of the earnings release, Xiaomi moved on multiple fronts to demonstrate that leadership was not standing still :

• HK$20 billion share buyback: Launched immediately to signal confidence and put a floor under the stock, although the shares still fell sharply on the day of the Jefferies downgrade .
• Smartphone ASP push: Management declared that raising average selling prices would be its primary operational focus for 2026, a clear bid to offset the memory cost headwind through premiumization .
• Aggressive AI investment: The company significantly boosted research and development spending to RMB 9 billion, concentrating on AI and robotics capabilities that it hopes will differentiate both its smartphone ecosystem and its EV stack .
• European EV expansion: Xiaomi pressed forward with plans to launch its electric vehicles in European markets, even as the domestic ramp-up remained below the pace needed for the 550,000-unit annual target .
• Operational optimization: The official HKEX filing emphasized continued efficiency improvements and deeper integration of the "Human × Car × Home" ecosystem as a structural response to cost inflation .

The Split Verdict on Wall Street

Xiaomi's Q1 2026 collapse leaves analysts in a genuinely fractured position. The Jefferies downgrade to Underperform captures the camp that sees a stock priced for a growth trajectory that no longer matches the underlying P&L reality—especially when EV valuation pressure is layered onto a legacy business facing its toughest margin environment in years . On the other side, Goldman Sachs and Morgan Stanley have kept their Buy-equivalent ratings, arguing that the AI strategy, ecosystem stickiness, and eventual EV scale-up will reward patient capital over a 12-month horizon .

What nobody is disputing is the near-term pain. With memory chip shortages projected to last into late 2027, smartphone recovery likely to be slow, and the EV unit still burning cash while chasing a stretched delivery target, Xiaomi's next few quarters will test whether its strategic bets can offset the cost storm—or whether more downgrades are still to come .