Executive Summary / Key Takeaways

• Cheetah Mobile Inc. ($CMCM) is undergoing a significant transformation, shifting from a legacy internet utility provider to a dual-engine growth company focused on AI-powered utility applications and service robotics.
• The company delivered its best financial results since Q1 2021 in Q2 2025, with total revenue growing 58% year-over-year and non-GAAP operating loss nearly reaching breakeven, demonstrating strong momentum in its turnaround.
• Central to its strategy is the "AI native way" of product development, leveraging AI agents and large language models (LLMs) to enhance existing internet products and drive innovation in its service robotics, exemplified by AgentOS.
• Cheetah Mobile is strategically expanding its global footprint in service robotics, having become Italy's largest provider within 12 months and acquiring UFACTORY to bolster its robotic arm capabilities.
• While the service robotics market is still nascent, management anticipates approximately 100% year-over-year revenue growth in its AI and other segments for the second half of 2025, with an internal goal to achieve overall breakeven in the near term.

The Genesis of a New Era: Cheetah Mobile's AI Transformation

Cheetah Mobile Inc., once primarily known for its internet utility applications like Duba Anti-virus and Yuanqi Wallpaper, is orchestrating a profound strategic pivot. Incorporated in 2009, the company built its foundation on consumer-facing software, but a visionary investment in artificial intelligence began as early as 2016. This early foresight is now culminating in a comprehensive transformation, repositioning Cheetah Mobile as a formidable player at the intersection of AI and robotics. The company's overarching strategy is to leverage its deep productization expertise to build two synergistic growth engines: AI-powered utility apps and AI robots.

This strategic evolution is set against a backdrop of significant industry shifts. The Chinese LLM industry is moving from infrastructure development to application-driven innovation, a trend Cheetah Mobile is uniquely positioned to capitalize on due to its proven track record across the PC and mobile eras. The service robotics market, though in its early stages, is projected to become a trillion-dollar industry, with LLMs accelerating its growth by enabling robots to perform more complex tasks and simplifying deployment. Cheetah Mobile's foundational strength lies in its ability to translate cutting-edge AI research into practical, user-centric products, a capability that management believes is hard to replicate.

Technological Edge: AI Agents and Robotics Innovation

At the core of Cheetah Mobile's renewed strategy is its differentiated approach to technology, particularly through the pervasive integration of AI agents. The company operates in an "AI native way," with small, flexible R&D teams utilizing AI for product design, testing, and building, which significantly accelerates development cycles and optimizes resource allocation. This approach allows one person to achieve what once required an entire team.

A prime example of this technological prowess is "Depo" (also referred to as "M AI"), an AI tool that efficiently transforms video, audio, and documents into concise summaries and mind maps, developed by a lean team of only three full-time employees. This highlights the company's ability to create high-value AI utilities with minimal overhead. Furthermore, Cheetah Mobile is enhancing its existing internet applications, such as Duba Anti-virus, Wallpaper apps, and PDF tools, with AI agents. For instance, Duba Anti-virus is testing a new AI feature designed to fix complex PC issues that were previously unsolvable, with early feedback proving encouraging.

In the robotics segment, AgentOS stands as Cheetah Mobile's next-generation voice interaction system, powered by its self-developed AI agent technology. This system enables robots to reason, autonomously verify information, and call additional tools to complete tasks, fundamentally expanding their capabilities. A tangible benefit of AgentOS is its ability to dramatically reduce robot setup time from approximately two days to just two hours, as observed in initial testing. This efficiency gain is critical for scalable deployment and rapid market penetration. The company also leverages multimodal models to enhance indoor autonomous driving, allowing robots to map large factories and navigate independently, and integrates robotic arms for specific tasks like pressing buttons for inter-floor delivery or picking and sorting items in factories.

Cheetah Mobile's commitment to open-source innovation is evident in its November 2024 launch of an 8x7 billion mixture of experts model, covering multiple languages, which powers its robots and AgentOS features. This strategy allows the company to benefit from the broader AI community while focusing its internal R&D on application-layer differentiation and scenario-specific data assets, rather than competing in large-scale foundational model training. The "so what" for investors is clear: these technological advancements contribute to a robust competitive moat by enhancing product performance, improving operational efficiency, and opening new market opportunities, ultimately driving higher customer satisfaction and potential for recurring revenue streams.

Financial Momentum and Strategic Growth Drivers

Cheetah Mobile's strategic pivot is yielding tangible financial results, signaling a robust turnaround. In the second quarter of 2025, the company reported its strongest performance since Q1 2021, with total revenue surging 58% year-over-year to RMB 295 million. This growth was broad-based, with the Internet business increasing 39% year-over-year and the AI and other segments experiencing an impressive 86% year-over-year increase. The company's non-GAAP operating loss significantly narrowed by 97% year-over-year, almost reaching breakeven, reflecting stringent cost management and an ROI-focused AI strategy.

Gross margin improved to 76% in Q2 2025, up from 65% in the prior year quarter. The Internet business, now largely subscription-driven with approximately 60% of its revenue from subscriptions, continues to be a "solid financial foundation." This shift has improved user engagement and retention, providing a stable and profitable base. In Q2 2025, the Internet segment's adjusted operating margin stood at 14%, an increase from 12% in the year-ago quarter.

This segment's consistent profitability provides the necessary resources to fuel investments in the high-growth AI and robotics areas.

The AI and other segments are poised for accelerated expansion, with management projecting approximately 100% year-over-year revenue growth in the second half of 2025. This growth is driven by recurring demand for voice-enabled robots, which saw a 100% revenue increase in China in Q2 2025, and expansion into new high-quality customers across healthcare, education, and cultural institutions. The acquisition of a 60.8% equity interest in UFACTORY, a profitable robotic arm company, in late July 2025, is expected to further accelerate global commercialization by combining UFACTORY's strengths with Cheetah Mobile's extensive distribution network.

Liquidity, Capital Allocation, and Future Outlook

Cheetah Mobile maintains a strong financial position, providing significant strategic flexibility. As of June 30, 2025, the company held RMB 282 million in cash and cash equivalents and USD 110 million in long-term investments, with zero debt.

The company generated RMB 362 million in operating cash flow during Q2 2025. This robust liquidity enables disciplined investment in high-potential growth opportunities without compromising financial strength.

Management's outlook is confident, with an internal goal to achieve overall breakeven in the second half of 2025. This path to profitability is primarily driven by the anticipated growth in the AI and other segments, complemented by the stable Internet business. The company's long-term ambition is for its robot business to account for over half of total revenue within three years, aiming to become one of the top three global service robot providers. This aggressive target underscores the strategic importance of robotics to Cheetah Mobile's future.

Competitive Landscape and Strategic Positioning

Cheetah Mobile operates in a dynamic competitive landscape, facing both direct and indirect rivals across its internet utility and robotics segments. In mobile utilities and security, direct competitors include established players like NortonLifeLock (NLOK), Gen Digital (GEN), and Qihoo 360 (QIHU). While these competitors often boast comprehensive security suites and strong brand recognition, Cheetah Mobile differentiates itself through its agility in international markets, particularly in emerging economies, and its focus on user-friendly, lightweight applications. The company's shift to a subscription model for its internet business has improved its financial stability and user engagement, allowing it to compete more effectively on value and user experience rather than solely on advertising.

In the nascent but rapidly expanding service robotics market, Cheetah Mobile's competitive advantage stems from its unique blend of global consumer product experience and real-world robotics operations. This allows for the application of AI agent technology across both software and hardware, creating synergies that are difficult for competitors to replicate. The company's AgentOS, with its enhanced voice interaction and task planning capabilities, positions it strongly in scenarios like reception, guiding, and promotion. Cheetah Mobile's strategy of building a strong local distribution network globally, as evidenced by its leadership in Italy and plans for a European headquarters in Germany, is crucial for setting it apart from peers and capturing market share.

While larger players may have deeper R&D resources for foundational AI models, Cheetah Mobile's focus on application-driven innovation and leveraging open-source models allows it to efficiently develop "killer apps" in selected areas. The company's ability to quickly productize AI technologies and iterate based on user feedback, supported by its hundreds of domestic and overseas agents, provides a significant edge. This pragmatic approach, prioritizing scalable use cases and delivering clear ROI to customers, is designed to build a deep moat based on scenario data assets and rapid product iteration, rather than solely on technical points that can be easily replicated.

Risks and Challenges

Despite its promising trajectory, Cheetah Mobile faces several pertinent risks. The service robotics market, while growing, is still developing, and mass deployment is not expected in the immediate quarters. The commercialization of advanced robotics, particularly in areas like data factories for model training, remains in a very early stage, requiring substantial long-term investment and presenting significant technical challenges. Management remains optimistic but cautious, acknowledging the long road from technical papers to scalable, profitable applications.

The "hallucination" problem inherent in large language models poses a challenge for action-oriented robot tasks, where errors can severely impact customer confidence and adoption. Furthermore, the hardware component of robotics does not benefit from Moore's Law, implying slower progress and higher costs compared to software development. The domestic market for service robots is also highly competitive, characterized by price wars. Overseas expansion, while a key growth driver, requires significant time and investment to build local channels, develop agents, and recruit sales teams, differing from the company's past app globalization efforts.

Conclusion

Cheetah Mobile is in the midst of a compelling transformation, successfully leveraging its legacy internet business as a stable foundation while aggressively pursuing growth in AI-powered utility applications and service robotics. The company's "AI native way" of product development, coupled with its strategic focus on AI agents and real-world, scalable robotics solutions like AgentOS, positions it to capitalize on the burgeoning AI application era. With strong financial results, a healthy balance sheet, and a clear strategic roadmap for global expansion and profitability, Cheetah Mobile is building a formidable competitive moat.

While challenges remain in the nascent robotics market and the inherent complexities of AI, the company's disciplined investment strategy, emphasis on productization, and unique blend of software and hardware expertise suggest a promising path forward. Investors should closely monitor the execution of its AI and robotics initiatives, particularly the expansion of AgentOS-powered robots and the continued profitability of its internet segment, as these will be critical indicators of its ability to achieve its ambitious long-term goals and solidify its position as a leader in the evolving AI landscape.