Executive Summary / Key Takeaways

• AI-Driven Resurgence: Kingsoft Cloud has successfully pivoted to an AI-centric strategy, driving significant revenue acceleration and a return to non-GAAP operating profitability in Q4 2024, with AI gross billings contributing 45% of public cloud revenue in Q2 2025.
• Ecosystem Powerhouse: As the sole strategic cloud platform for the Xiaomi and Kingsoft ecosystem, the company benefits from robust, long-term demand across diverse AI-powered initiatives, with a substantial RMB 11.3 billion revenue cap approved for 2025-2027.
• Technological Differentiation: Kingsoft Cloud's proprietary intelligent computing cloud, Xinyu platform, and advanced AI suite offer tangible benefits like improved model training performance and reduced unit costs, strengthening its competitive moat.
• Improving Financial Health: Despite historical losses and upfront AI investments impacting gross margins, the company's non-GAAP EBITDA profit surged 5.7x year-over-year in Q2 2025, and management expects full-year 2025 non-GAAP operating profitability.
• Strategic Capital Deployment: Kingsoft Cloud is adopting flexible capital models, including leasing and profit-sharing, to fund aggressive AI infrastructure expansion (RMB 10 billion for 2025) while managing debt and leveraging strategic customer prepayments.

The AI Imperative: Kingsoft Cloud's Strategic Evolution

Kingsoft Cloud Holdings Limited, established in 2012 and headquartered in Beijing, China, has emerged as a significant independent cloud service provider in the rapidly expanding Chinese market. The company's core business revolves around a comprehensive suite of cloud services, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS) middleware, and Software as a Service (SaaS) applications, encompassing cloud computing, network, containers, database, big data, security, storage, and delivery solutions. Over the past three years, Kingsoft Cloud has firmly committed to a "high-quality and sustainable development strategy," fundamentally reshaping its business model by fully embracing the transformative opportunities presented by Artificial Intelligence. This strategic pivot has not only revitalized its business fundamentals but has also positioned it as a key player in the generative AI era.

The broader cloud computing market in China is experiencing robust growth, with the advent of generative AI significantly "lifting the ceiling of cloud services market". This trend is accelerating AI adoption across various sectors, demonstrating a substantial ability to improve productivity, enhance user experience, and generate additional revenue streams. Kingsoft Cloud's strategic response to these market dynamics is to deepen its commitment to AI, enhance its technical capabilities, and refine its intelligent computing products to capture a leading position in this evolving landscape.

A cornerstone of Kingsoft Cloud's strategy is its role as the sole strategic cloud platform for the extensive Xiaomi and Kingsoft ecosystem. This deep integration provides a foundational demand base, supporting various initiatives from Xiaomi's electric vehicles (EV), mobile phones, IoT devices, and smart manufacturing, to Kingsoft Office's WPS AI. This symbiotic relationship is crucial for Kingsoft Cloud's growth, offering stable, long-term business opportunities and a clear path for revenue expansion.

Technological Edge: Powering the AI Revolution

Kingsoft Cloud's competitive differentiation is deeply rooted in its advanced technological offerings, particularly within its AI intelligent computing cloud. The company has extensively upgraded its IaaS and PaaS cloud service capabilities specifically for the generative AI era.

Its core technology includes a robust AI suite built upon cloud container services, providing essential components such as heterogeneous resource management, AI workload scheduling, intelligent operation and maintenance, and resource monitoring. This comprehensive suite offers full lifecycle support for large language model (LLM) scenarios, enabling customers to efficiently develop, fine-tune, and deploy AI models. Furthermore, Kingsoft Cloud's intelligent computing network has significantly reduced troubleshooting time for large model training from hours to minutes, ensuring service stability and operational efficiency.

The company's proprietary "Xinyu training and inference platform" is a one-stop AI development and deployment solution, committed to providing enterprises with efficient, elastic, and cost-effective model training and inference services. This platform offers data sets and simulation service capabilities required by the AI industry, alongside full lifecycle management of data processes and tests. These intelligent computing cloud technologies help customers improve model training performance and save unit costs through optimized resource management, data governance, network communication, and protection.

Recent innovations include the launch of its ninth-generation cloud server, designed to efficiently support high-performance computing use cases such as AI, machine learning, and inference. This server also meets the demanding requirements of large-scale databases and real-time data analysis, while strengthening data security and encryption processing. Additionally, the new version of Kingsoft Cloud Galaxy Stack supports multiple mainstream processor platforms and domestic operating systems, enhancing compatibility for private deployment scenarios.

For investors, these technological differentiators are critical. They form the bedrock of Kingsoft Cloud's competitive moat, enabling it to offer superior performance and cost efficiencies that attract and retain high-value AI customers. This technological leadership translates into higher average selling prices (ASPs) for its AI-related services, improved margins, and a strong market position, driving its long-term growth strategy in the burgeoning AI cloud market.

Dual Engines of Growth: Public and Enterprise Cloud

Kingsoft Cloud's revenue growth is propelled by its dual-engine strategy, focusing on both Public Cloud Services and Enterprise Cloud Services, with AI serving as a cross-cutting accelerator.

Public Cloud Services

The Public Cloud segment has been a primary beneficiary of the AI pivot. In the second quarter of 2025, Public Cloud revenue reached RMB 1.63 billion, marking a significant 32% year-over-year increase. This acceleration is largely attributable to the surging demand for AI intelligent computing. AI gross billings in Q2 2025 hit RMB 728 million, representing a year-over-year increase of over 120% and a quarter-over-quarter growth of 39%, now accounting for a substantial 45% of public cloud revenue. This demonstrates that Kingsoft Cloud has, over the past two years, built an intelligent computing cloud business of nearly equivalent scale to its basic cloud offerings. The growth in AI-driven data volume also boosts basic cloud services, offsetting revenue pressure from the strategic scaling down of lower-margin services like Content Delivery Network (CDN). Management anticipates the overall market demand for AI to remain very strong, with the company continuing to build and upgrade its intelligent computing cloud resources.

Enterprise Cloud Services

The Enterprise Cloud segment provides customized solutions for digital transformation across various industries. In Q2 2025, Enterprise Cloud revenue reached RMB 724 million, a 10% year-over-year increase, driven by strong demand for IT delivery services and steady progress on external enterprise projects. While Q1 2025 saw a sequential decline due to seasonal slowdowns and the Chinese New Year, the advent of AI has significantly impacted traditional industries, generating strong demand from public services, healthcare, and financial sectors.

Kingsoft Cloud is strategically focusing on areas where it holds a competitive advantage. In the public services sector, it partnered with Kingsoft Office (688111.SS) to release the "Kingsoft Government AI all-in-one server," offering full-stack AI capabilities. In healthcare, the company is building regional healthcare systems and hospital solutions, winning projects like the Changchun Municipal Public Health Information Platform. For enterprise services, it is implementing AI in complex business models, exemplified by a credit report automation project with a major state-owned bank. Management expects the second half of 2025 to show significantly higher revenue growth for Enterprise Cloud due to typical seasonality.

Ecosystem Synergy: The Xiaomi and Kingsoft Advantage

Kingsoft Cloud's deep integration with the Xiaomi and Kingsoft ecosystem is a powerful, differentiated growth driver. As the sole strategic cloud platform, it benefits from the extensive and expanding needs of these affiliated entities.

In Q2 2025, revenue from the Xiaomi and Kingsoft ecosystem reached RMB 629 million, a robust 70% year-over-year increase, contributing 27% to total revenue. For the first half of 2025, this revenue totaled RMB 1.13 billion, already accounting for 40% of the total annual cap for related product transactions in 2025. This strong performance is driven by Xiaomi's AI-powered initiatives across its "Human x Car x Home" smart ecosystem, including its EV business, mobile phones, IoT devices, and smart manufacturing, as well as the advancements in WPS AI. Notably, Xiaomi's 7 billion parameter model was trained using Kingsoft Cloud's clusters.

Shareholders have approved a significantly increased revenue contribution from Xiaomi and Kingsoft for the 2025-2027 period, setting a cap of RMB 11.3 billion, which is ten times the amount in 2023. This long-term commitment provides substantial revenue visibility and a solid foundation for Kingsoft Cloud's sustained growth and profitability.

Financial Trajectory: A Return to Profitability

Kingsoft Cloud's financial performance reflects its strategic transformation and operational discipline. The company's total revenue in Q2 2025 reached RMB 2.35 billion, representing a 24% year-over-year growth, a notable acceleration from the 11% year-over-year growth in Q1 2025. This marks a significant turnaround, with Q4 2024 seeing non-GAAP operating profit turn positive for the first time, achieving a 1.1% margin.

While adjusted gross margin in Q2 2025 was negatively impacted by higher service costs, the expansion of its AI business, upfront costs for certain customers, and price pressure on scale clusters, adjusted gross profit still increased by 8.4% year-over-year and 7% quarter-over-quarter. The non-GAAP EBITDA profit in Q2 2025 surged to RMB 406 million, a 5.7x increase from RMB 66 million in the same quarter last year, with the non-GAAP EBITDA margin reaching 17.3% compared to 3.2% in Q2 2024. This substantial improvement is attributed to the company's strong commitment to AI cloud computing development, strategic business structure adjustments, and strict cost and expense control. Management expects gross margin to stabilize at current levels in the coming quarters as new procurement models are refined. More importantly, EBITDA and operating margins are projected to improve at an even faster pace than gross margin, driven by the increasing penetration of the high-margin AI business. The company aims to achieve a positive non-GAAP operating profit for the full year 2025.

Liquidity remains strong, with cash and cash equivalents totaling RMB 5.46 billion as of June 30, 2025. This position was bolstered by a recent HK$2.802 billion offering of new shares, with 80% of the proceeds earmarked for AI infrastructure and cloud capabilities.

The company's capital expenditure for 2025, including self-procurement and lease purchases, is estimated at around RMB 10 billion, with approximately RMB 5 billion spent in the first half. Kingsoft Cloud has strategically shifted its procurement model to a "resource pool" or "profit sharing" approach, which, while potentially impacting gross margin slightly, reduces CapEx and gearing ratios, and is exploring an "agent model" to further optimize capital deployment.

Competitive Positioning: A Nimble Challenger in a Hyperscale Arena

Kingsoft Cloud operates in a highly competitive Chinese cloud market, dominated by hyperscale players like Alibaba Cloud , Tencent Cloud , and Baidu Cloud . Despite this formidable landscape, Kingsoft Cloud has demonstrated its ability to increase market share amidst a decline for other internet cloud service providers. Its Q4 2024 revenue growth of 30% year-over-year exceeded even the top players in the industry, and its EBITDA margin has surpassed the industry average, placing it among the top-tier peers.

Alibaba Cloud , a major competitor, boasts a vast ecosystem, global reach, and strong revenue growth, with AI-related products showing triple-digit growth for eight consecutive quarters and contributing over 20% of external cloud sales. Tencent Cloud leverages its social and gaming ecosystem, achieving high double-digit revenue growth annually and focusing on PaaS and SaaS offerings. Baidu Cloud (BIDU) specializes in AI-driven services, particularly for search and autonomous driving, with AI Cloud revenue rising 27% year-over-year in Q2 2025.

Kingsoft Cloud differentiates itself through its specialized focus on AI intelligent computing, its deep integration with the Xiaomi and Kingsoft ecosystem, and its commitment to cost-effective, user-friendly solutions. While it may not match the sheer scale or global footprint of Alibaba (BABA) or Tencent (TCEHY), Kingsoft Cloud's technological advantages in AI platforms, such as the Xinyu training and inference platform, provide superior efficiency for specific workloads, making its solutions attractive to developers and enterprises seeking tailored AI capabilities. The company's adaptability across various verticals, including public services and healthcare, allows it to capture market share in segments where hyperscalers might have a broader but less specialized approach.

The success of open-source models like DeepSeek R1 has also reshaped the competitive dynamics. While some "old batch" large language model companies may see shrinking demand, DeepSeek's lower deployment costs and widespread adoption are inspiring new internet and emerging industry customers to embrace AI applications, creating incremental demand that Kingsoft Cloud is well-positioned to capture. Furthermore, the increasing adoption of medium-sized or smaller models within the Xiaomi and Kingsoft ecosystem is driving greater utilization of Kingsoft Cloud's computing resources, presenting another avenue for incremental revenue and profit.

Risks and Challenges

Despite its strong momentum, Kingsoft Cloud faces several pertinent risks. Geopolitical tensions and supply chain uncertainties, particularly regarding chip availability, pose a continuous challenge. While the company has mitigated short-term impacts through inventory and diversified channels, a "killer app" Gen AI application could lead to explosive demand that domestic chip supply might struggle to meet in the longer term.

Customer concentration, particularly its reliance on the Xiaomi and Kingsoft ecosystem, while a strength, also presents a risk. Any slowdown or shift in demand from these key partners could materially impact Kingsoft Cloud's revenue. Additionally, the expansion of its AI business, while driving growth, incurs higher service costs and upfront investments, which can pressure gross margins. The competitive nature of the cloud services industry in China, with aggressive pricing strategies from larger players, could also limit margin expansion.

Conclusion

Kingsoft Cloud Holdings Limited stands at an inflection point, having successfully transformed its business model to capitalize on the generative AI revolution. Its strategic pivot, underpinned by a "high-quality and sustainable development strategy" and deep integration with the Xiaomi (XIACY) and Kingsoft (3888.HK) ecosystem, has driven significant revenue acceleration and a return to non-GAAP operating profitability. The company's technological prowess in intelligent computing cloud services, coupled with its flexible capital deployment strategies, positions it to capture substantial opportunities in the burgeoning AI market.

While competitive pressures from hyperscale rivals and ongoing supply chain uncertainties present challenges, Kingsoft Cloud's differentiated offerings, strong ecosystem ties, and disciplined financial management indicate a compelling investment narrative. The anticipated acceleration in revenue growth for the second half of 2025, coupled with management's commitment to expanding profitability, suggests a positive trajectory for the company. Investors should closely monitor the continued execution of its AI strategy, the monetization of its technological advancements, and its ability to navigate the dynamic competitive and geopolitical landscape to fully realize its long-term value potential.