$XIAOMI-W(01810)$ has evolved far beyond its budget-smartphone origins. Today, it stands at the crossroads of three major industries: premium smartphones, smart home IoT, and electric vehicles (EVs). With a solid free cash flow, a fast-growing services segment, and an aggressive push into EVs, Xiaomi’s future looks bright—but not without challenges. So, is now the right time to invest? Let’s break it down.
Cash Flow: Xiaomi’s Financial Superpower
Free cash flow is the financial backbone of any ambitious company, and Xiaomi has plenty of it. Thanks to disciplined cost control and expanding profit margins, Xiaomi has positioned itself for sustainable growth. Recent financials tell the story. EPS for the last quarter came in at HK$0.35, beating the estimated HK$0.25, while revenue is expected to reach HK$114.15 billion next quarter. With a market cap of HK$1.19 trillion and a P/E ratio of 45.90, Xiaomi still has room for growth if earnings continue to expand. Despite recent volatility, the fundamentals remain strong, and Xiaomi’s ample free cash flow gives it the flexibility to invest aggressively in its next big move—electric vehicles.
EV Ambitions: Can Xiaomi Disrupt the Auto Industry?
Xiaomi’s entrance into the EV market isn’t a side project—it’s a full-throttle expansion. The company’s SU7 electric sedan, launched in early 2024, shattered records with nearly 90,000 pre-orders in 24 hours. Next up is the YU7 SUV, expected in mid-2025, targeting the same premium segment as Tesla’s Model Y. If Xiaomi can make cars as efficiently as it makes smartphones, Elon Musk might have to check his rear-view mirror.
While EVs present a lucrative long-term opportunity, the road isn’t without obstacles. Building a car business is costly, and scaling production while maintaining quality will be a challenge. The EV industry is one of the most heavily regulated markets, meaning $XIAOMI-W(01810)$ must navigate a complex landscape. That said, Xiaomi’s asset-light approach and expertise in producing high-quality hardware at competitive prices could give it an edge over traditional automakers. If executed well, analysts predict that EVs could account for 15-20% of Xiaomi’s total revenue by 2028.
Smartphones & IoT: The Ecosystem Advantage
Beyond EVs, Xiaomi’s core business remains strong. The company has doubled down on two key strategies. First, its premium smartphone play is no longer just an ambition; it’s a reality. Xiaomi has gained serious traction in the high-end market, with premium smartphones now commanding 18% of China’s high-end market, up from 7% two years ago. Gross margin improved to 18.4% last quarter, beating expectations of 17.2%. While R&D and marketing costs are rising, Xiaomi’s ability to gain market share suggests long-term profitability should follow.
Second, Xiaomi’s IoT ecosystem is quietly becoming a major revenue driver. IoT customers spend 34% more on Xiaomi products over three years than smartphone-only customers, reinforcing the strength of its ecosystem. The company leads China in true wireless stereo (TWS) earbuds and tablet growth. A growing ecosystem means stickier customers, leading to better long-term profitability. And let’s be honest, once you’ve got a Xiaomi smart fridge, vacuum, and doorbell, you’re in too deep to switch brands.
When smartphones grow up and become EVs… Xiaomi-level ambition
Hidden Gem: Services Revenue is Surging
One aspect of Xiaomi’s business that many investors overlook is its rapidly growing services revenue. This segment, which includes advertising, gaming, and financial services, grew 31% year-over-year last quarter and now accounts for 12% of total revenue. Unlike hardware, this is a high-margin business that analysts have consistently underestimated. If current trends continue, services revenue could grow to 20-25% of Xiaomi’s total business in three years, significantly improving overall margins and providing a new pillar of sustainable profitability. As the saying goes, ‘Why sell a phone once when you can monetise it forever?’
Xiaomi’s numbers? All pointing in the right direction, finally
Risks: Not a Risk-Free Ride
No investment is without risks, and $XIAOMI-W(01810)$ faces its share of challenges. Geopolitical uncertainty remains a significant factor, as trade restrictions or policy shifts could impact its growth. Supply chain disruptions and currency fluctuations also pose potential threats to margins. The company’s EV execution challenges cannot be ignored either. The SU7’s launch was a success, but scaling production and meeting regulatory requirements will be key to its long-term success.
Recent events underscore the stock’s sensitivity. Shares dropped 5.49% after news of an SU7 accident, wiping out HK$70 billion in market value. While long-term fundamentals remain intact, short-term volatility should be expected. If you’re the type of investor who panics at the first sign of turbulence, this might not be the smoothest ride for you.
Investment Outlook: Buy, Hold, or Wait?
So, is now the right time to invest in Xiaomi? There’s a strong bullish case to be made. The company boasts solid free cash flow, an aggressive EV expansion, premium smartphone growth, and an underestimated services segment. On the other hand, challenges such as execution risks, competition, and external headwinds like geopolitical tensions and supply chain disruptions cannot be ignored.
With the stock trading at HK$45.90, well below analysts’ HK$64.01 target, the potential upside is clear. If Xiaomi executes well, its stock could hit HK$75-85 within three years, a 60-80% gain from current levels.
For long-term investors with a three-year horizon, Xiaomi looks like a strong buy. However, given short-term volatility, a staged entry strategy—buying in increments over 6-9 months—may be the smarter play.
Where Will Xiaomi Be in 3 Years?
By 2028, Xiaomi could be a vastly different company. The EV division is projected to contribute 15-20% of revenue, while its premium smartphone strategy will likely have matured, establishing Xiaomi as a genuine third force in the high-end market globally, not just in China. Most importantly, services revenue could expand to 20-25% of the business, significantly boosting margins.
If Xiaomi pulls this off, it won’t just be competing with $Apple(AAPL)$ and $Tesla Motors(TSLA)$—it will be a dominant force in consumer tech across multiple verticals. The journey won’t be smooth, but for investors willing to ride the waves, Xiaomi’s future looks highly promising.
A smart city powered by Xiaomi dreams (and a lot of data)
Final Verdict: Is Xiaomi a Buy?
If you believe in Xiaomi’s long-term vision and can handle some volatility, now is an excellent time to buy. The company has a strong balance sheet, diversified growth drivers, and a clear roadmap for the future. For those who prefer a more cautious approach, averaging into a position over the next few months could be a wise move.
One thing is certain—Xiaomi isn’t just a smartphone company anymore. And that’s exactly why investors should be paying attention.
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