Xiaomi Q2 earnings key to extending stock’s best rally in a year

Xiaomi's shares could potentially maintain their recent surge, as the smartphone and electric vehicle manufacturer's financial results, due on Aug 18, are anticipated to demonstrate their ability to manage increasing material costs. The company's stock has surged nearly 20 percent in Hong Kong since the end of June, following four consecutive quarters of losses amid weak smartphone demand and high component costs.

This positive momentum has been fueled by anticipation surrounding Xiaomi's new SUV models and rising investor interest in undervalued Chinese tech shares.

Xiaomi's shares are currently trading at 17 times forward earnings estimates, which is below its five-year average and significantly lower than the 22 times for the Nasdaq 100 Index. Analysts are primarily focusing on how Xiaomi's smartphone division is handling the elevated memory costs and whether the company can successfully shift its product mix towards higher-priced models, which could provide a stronger cushion against cost pressures.

Kenny Ng, a strategist at China Everbright Securities International, noted that better-than-expected profitability would be a major catalyst for the shares. Xiaomi's consensus downgrades have set a lower bar for the company to impress the market. Analyst estimates now project a 6.6 percent decline in quarterly sales with a gross profit margin of 20.4 percent, down about two points from 2025's level.

While Xiaomi's electric vehicle business has been a relative bright spot, its delivery target of 550,000 units for the year is becoming increasingly challenging, according to Bernstein analysts Eunice Lee.

Options traders are pricing in a 3.6 percent swing in either direction for Xiaomi shares after the results, which is higher than the average 2.8 percent fluctuation seen following the last eight quarterly reports. Short interest has also decreased to 8.2 percent of the free float, down from a record high of 9.3 percent in June.