Xiaomi’s AI Ambition Fuels a Costly Hardware Squeeze

Xiaomi’s stock is caught in a vice, pressured by the very technological revolution it seeks to lead. The company’s aggressive push into artificial intelligence is simultaneously eroding profitability in its core smartphone business while opening a promising new revenue stream, creating a complex financial balancing act for management.

The hardware cost surge is immediate and severe. Company President Lu Weibing recently disclosed that procurement prices for memory components have nearly quadrupled year-over-year. A specific bundle of 12GB of RAM and 512GB of storage now costs Xiaomi approximately 1,500 yuan more than it did in the first quarter of last year. This inflation is directly tied to the global AI boom, which is absorbing vast quantities of memory resources for data centers, leaving smartphone manufacturers scrambling.

Analysts at TrendForce forecast this pain will intensify. They project DRAM contract prices could jump by up to 63% in the second quarter of 2026, with NAND Flash prices potentially soaring by 75%. Some industry observers don’t anticipate relief until 2028. The financial impact is already stark: the gross margin for Xiaomi’s smartphone segment collapsed from 12.6% for the full year 2024 to just 8.3% in the fourth quarter.

In direct response, Xiaomi is raising prices. Starting April 11, the list prices for three Redmi models, including the Redmi K90 Pro Max, will increase by 200 yuan on the Chinese home market. All promotional discounts for the Turbo series have been scrapped. While similar measures have not yet been announced for Europe, the move signals a necessary but risky strategy to pass soaring production costs to consumers.

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Concurrently, Xiaomi is mounting a formidable AI offensive. Its MiMo-V2-Pro large language model, introduced in mid-March and trained on over a trillion parameters, is performing at a level competitive with leading US models from OpenAI and Anthropic. In benchmark tests like ClawEval for agentic systems, it scored 61.5, placing it close to models like Claude Opus 4.6 (66.3). The model’s commercial launch on April 3 was met with explosive demand, processing over one trillion tokens on its first day—a volume it had previously reached during anonymous testing on the OpenRouter platform.

To monetize this technology, Xiaomi launched a tiered subscription service called TokenPlan, which converts usage into credits rather than charging per call. An 88% introductory discount is available for first-time buyers. The company plans to deeply integrate MiMo-V2-Pro into its new Xiaomi 17 series, priced from 999 euros, aiming to strengthen its ecosystem. This strategic pivot is backed by a substantial three-year investment plan totaling $8.7 billion, with the long-term goal of reducing reliance on pure device sales and boosting higher-margin service revenue.

The stock market reflects the tension of this dual narrative. Xiaomi’s share price has nearly halved from its peak last year and is hovering just above its 52-week low. The stock closed recently at 3.46 euros, marking a year-to-date loss of roughly 23%. In a show of confidence, management initiated a share buyback on April 2, repurchasing approximately 12.8 million shares for about 395 million Hong Kong dollars. On the same day, net inflows of 1.1 billion Hong Kong dollars entered the stock via Southbound Trading from mainland China, indicating sustained institutional interest.

All eyes are now on Xiaomi’s first-quarter results, due at the end of May. The report will reveal whether early price increases and the push for premium models are sufficient to offset the crushing memory costs. The company’s challenge is clear: it must successfully navigate the costly hardware squeeze of today to fund its ambitious and potentially lucrative AI future.