Executive Summary / Key Takeaways

• MicroAlgo Inc. has achieved a significant financial turnaround, returning to profitability in 2024 with $7.3 million in net income on $75.3 million in revenue, driven by a strategic pivot to its core central processing algorithm services.
• The company is aggressively investing in and developing advanced quantum computing algorithms, including solutions for secure information hiding, enhanced neural network training, error correction, and combinatorial optimization, positioning itself at the forefront of emerging AI and data science technologies.
• Despite its recent profitability and technological advancements, MLGO appears significantly undervalued, trading at a P/E ratio of 7.41 (TTM) and a P/S ratio of 1.58 (TTM), compared to a sector median P/E of 27.88. This suggests a disconnect between its intrinsic value and market perception.
• China's strategic push for domestic AI processors, evidenced by restrictions on foreign chips, creates a substantial market opportunity for MicroAlgo, potentially accelerating the adoption of its specialized algorithm solutions within the Chinese market.
• Key risks include the high costs associated with quantum R&D, market volatility, and the challenge of scaling its innovative technologies into widespread commercial applications amidst intense competition from larger, established tech giants.

The Quantum Leap: Technological Edge and Innovation

MicroAlgo Inc. (NASDAQ:MLGO) is carving out a niche in the rapidly evolving landscape of artificial intelligence and data processing, primarily through its bespoke central processing algorithm solutions. The company's core business revolves around optimizing computing power without the need for hardware upgrades, alongside offering data processing and data intelligence services to clients in internet advertisement, gaming, and intelligent chip industries across China, Hong Kong, and internationally. This strategic focus has been instrumental in its recent financial resurgence, but it is the company's aggressive foray into quantum computing that truly differentiates its long-term potential.

The global technology sector is witnessing a transformative shift towards AI and big data, with an increasing demand for high-speed, efficient, and secure data processing. China, in particular, is accelerating its drive for AI chip self-reliance, with mandates for domestic data centers to source over 50% of their chips from local producers. This geopolitical dynamic, coupled with restrictions on foreign AI chips, creates a fertile ground for domestic innovators like MicroAlgo to gain significant traction. The "AI Plus" initiative in China, aiming for AI applications to reach a 70% penetration rate in six key sectors by 2027 and over 90% by 2030, underscores a national commitment to embedding AI across the economy, presenting a massive addressable market for MicroAlgo's specialized algorithms.

MicroAlgo's technological differentiation is deeply rooted in its suite of quantum algorithms, which promise to redefine computational efficiency and security. The company has integrated the Quantum Image LSQb Algorithm with Quantum Encryption Technology to establish a more secure quantum information hiding and transmission system. This innovative approach significantly reduces the demand for quantum resources, minimizing unnecessary quantum bits and gate operations, thereby increasing algorithm execution speed. The system also greatly improves resilience to interference, maintaining high information fidelity even in noisy environments, and reduces the cost and technical complexity of hardware implementation, making large-scale commercial applications feasible in areas such as medical image encryption and financial transaction systems.

Further demonstrating its commitment to quantum innovation, MicroAlgo has adopted the Quantum Phase Estimation (QPE) Method to enhance Quantum Neural Network training, a critical step in advancing quantum machine learning. The company is also actively exploring the optimization of Quantum Error Correction Algorithms, which are crucial for improving the accuracy and reliability of quantum computations. These optimized algorithms are designed to enhance the resistance of quantum information to interference while maintaining high encoding efficiency, capable of accurately detecting even minor errors in qubits, and exhibiting strong robustness and scalability for applications in quantum communication, computing, simulation, and optimization.

MicroAlgo's research into the Quantum Information Recursive Optimization (QIRO) Algorithm for combinatorial optimization problems is another significant development. This algorithm achieves exponential improvements in computational efficiency, enabling the handling of large-scale and highly complex optimization problems in a short time. It possesses stronger global search capabilities, effectively avoiding local optima, and is highly flexible and robust, with applications spanning logistics, financial investment, artificial intelligence, and scientific research. The company has also developed a Quantum Convolutional Neural Network (QCNN) Architecture to enhance traditional computer vision tasks, a Quantum Image Encryption Algorithm based on quantum key images for higher security image protection, and Classifier Auto-Optimization Technology based on Variational Quantum Algorithms, which significantly reduces the complexity of parameter updates during training, markedly improving computational efficiency. Lastly, its Quantum Edge Detection Algorithm optimizes the feature extraction process through quantum circuits, reducing computational complexity from O(N²) to O(N) while maintaining detection accuracy, offering new solutions for real-time image processing and edge intelligence devices.

For investors, these technological advancements are not merely academic exercises; they represent the foundation of MicroAlgo's competitive moat. By offering superior performance, efficiency, and security in critical areas like AI, data processing, and cybersecurity, these innovations position MicroAlgo to capture market share in emerging high-growth sectors. This technological leadership has the potential to translate into higher adoption rates, improved margins through efficiency gains, and sustained long-term growth as quantum computing matures and becomes more commercially viable.

Financial Rebound and Operational Efficiency

MicroAlgo has demonstrated a remarkable financial turnaround, transitioning from significant losses to profitability. In 2024, the company reported total revenues of $75.3 million (RMB 541.5 million) and a net income of $7.3 million (RMB 53.4 million). This marked a substantial recovery from a net loss of $37.87 million in 2023 and $6.96 million in 2022. The return to profitability was largely attributed to a strategic pivot, as the company shifted away from its intelligent chips and services segment to focus entirely on central processing algorithm services, which accounted for 100% of its revenues in 2024.

The company's financial health is further underscored by its strong cash position. As of December 31, 2024, MicroAlgo held cash and cash equivalents of $144.1 million, a significant increase from $44.79 million in 2023. This robust liquidity continued into the first half of 2025, with cash and equivalents reaching $253.3 million as of June 30, 2025. This strong balance sheet, coupled with minimal debt, provides MicroAlgo with the financial flexibility to continue its aggressive R&D investments in quantum computing. The company also entered into agreements for the issuance of convertible notes totaling $80 million, further bolstering its capital resources.

Despite these positive developments, some financial metrics warrant closer examination. While the company achieved profitability in 2024, its revenue for the first half of fiscal 2025 was $26.3 million, with an EPS of $1.33. Retrospectively, MicroAlgo's revenue decreased by 28% in the last year and 34% over the last three years, which is considered undesirable. This receding revenue trend in the medium term has contributed to a low price-to-sales (P/S) ratio. However, the strategic shift to focus solely on central processing algorithm services in 2024, which generated all revenues, suggests a more concentrated and potentially higher-margin business model going forward. The gross profit margin (TTM) stands at 28.39%, operating profit margin (TTM) at 3.74%, and net profit margin (TTM) at 7.14%, indicating a lean operational structure. The current ratio (TTM) of 6.11 highlights strong short-term liquidity.

Competitive Arena: Positioning for Growth

MicroAlgo operates in a highly competitive technology landscape, facing both established giants and agile innovators. Its direct competitors include major players like NVIDIA Corporation (NVDA), Intel Corporation (INTC), Advanced Micro Devices (AMD), and Baidu, Inc. (BIDU). These companies are deeply entrenched in AI processing, chip manufacturing, and related services, often with significantly larger market capitalizations and R&D budgets.

NVIDIA, for instance, dominates the GPU market for AI applications, offering superior raw processing power through its hardware-intensive solutions. Intel and AMD are formidable forces in CPU and AI chip design, leveraging their manufacturing scale and broad product portfolios. Baidu, a Chinese technology behemoth, competes directly in AI services, search engines, and cloud computing, with a strong domestic market presence.

MicroAlgo differentiates itself through its software-based algorithm optimization, which enhances computing efficiency without requiring costly hardware upgrades. This approach offers greater flexibility and potentially lower implementation costs for customers, particularly appealing to cost-sensitive markets like internet advertising and gaming. While MLGO may not match the raw processing power or market penetration of hardware giants like NVIDIA and AMD, its focus on specialized algorithm services and quantum computing provides a distinct value proposition. The company's unique ability to deliver optimized data processing without physical infrastructure changes positions it as a more accessible option for businesses prioritizing scalability and cost efficiency.

The competitive landscape is further shaped by China's strategic imperative for technological self-reliance. The Cyberspace Administration of China (CAC) has instructed major firms, including Alibaba (BABA) and ByteDance, to halt procurement of Nvidia's RTX Pro 6000D chips, a move aimed at encouraging domestic AI processors. This policy creates a significant opportunity for Chinese companies like MicroAlgo to fill the void and accelerate the adoption of their homegrown AI and quantum solutions. While domestic chips are reportedly capable enough for AI inference, they may still lag behind the latest Nvidia and AMD GPUs for training complex AI models. This dynamic underscores the importance of MicroAlgo's algorithm optimization capabilities, which can enhance the performance of existing hardware and potentially bridge performance gaps.

MicroAlgo's competitive advantages, or moats, primarily stem from its proprietary algorithm technology and its specialized software services. These allow for enhanced computing power without hardware upgrades, potentially fostering stronger customer loyalty through recurring revenue from efficient data processing. This can lead to superior margins by reducing operational costs and enabling faster innovation cycles. However, MicroAlgo's smaller scale and potential dependency on the Chinese market represent vulnerabilities. This could result in lower margins and revenue volatility, impacting market share and limiting R&D investment compared to its larger rivals.

Outlook and Risks: Charting the Future

MicroAlgo's future growth trajectory is intrinsically linked to the burgeoning fields of artificial intelligence and quantum computing. The company's novel information hiding and transmission system is expected to expand into emerging areas such as artificial intelligence and big data analysis, driven by continuous advancements in quantum computing and encryption technologies. In AI, leveraging quantum computing can accelerate the training process of machine learning models, while in big data analysis, quantum image processing technology can help extract valuable information from massive datasets more quickly. The Quantum Information Recursive Optimization (QIRO) algorithm, in particular, holds immense growth potential as quantum technology progresses, potentially serving as a model for hybrid quantum-classical algorithms that expand quantum computing applications across various industries.

Despite the promising outlook, MicroAlgo faces several pertinent risks. The company's profitability in 2024 was achieved despite high R&D costs and market volatility, indicating ongoing financial pressures. The development of quantum technologies is inherently expensive and complex, and ensuring efficient error correction in large-scale qubit systems and adapting to continuously changing error patterns remain significant challenges. Furthermore, the company's forward-looking statements are subject to numerous conditions beyond its control, as detailed in its periodic SEC reports.

From a valuation perspective, MicroAlgo appears significantly undervalued. It is currently trading at a P/E GAAP of 0.58 versus a sector median of 27.88, and a TTM P/E ratio of 7.41. The price-to-sales (P/S) ratio of 1.58 (TTM) is also considerably lower than the industry median, with some analysts noting that MicroAlgo's receding revenue in recent times contributes to this low P/S. The stock has experienced significant volatility, losing over 89% year-to-date and over 90% in the last 12 months, despite its recent profitability. This suggests that the market may not yet fully appreciate the company's strategic pivot and its long-term potential in quantum computing. Unless recent medium-term conditions improve, these factors could continue to act as a barrier for the share price.

Conclusion

MicroAlgo Inc. stands at a pivotal juncture, having successfully executed a strategic pivot that returned the company to profitability in 2024, underpinned by its dedicated focus on central processing algorithm services. This financial resurgence, marked by a net income of $7.3 million on $75.3 million in revenue, provides a solid foundation for its ambitious ventures into quantum computing. The company's aggressive development of advanced quantum algorithms for secure data transmission, enhanced AI training, and complex optimization problems positions it as a significant, albeit early-stage, player in a transformative technological frontier.

The confluence of MicroAlgo's innovative quantum technologies, its strategic alignment with China's push for domestic AI self-reliance, and its current undervaluation presents a compelling, albeit high-risk, investment thesis. While challenges such as high R&D costs, market volatility, and intense competition from larger tech firms persist, the potential for its bespoke algorithms to deliver superior efficiency and security in critical AI and data science applications offers substantial long-term growth prospects. Investors with a high-risk tolerance and a long-term view on the quantum computing revolution may find MicroAlgo an intriguing opportunity, provided they closely monitor its operational execution, commercialization efforts, and the evolving competitive and regulatory landscape.