Shares of Xiaomi (XIACY) jumped 7.0% to $17.60 on August 19 after management told investors the worst of the memory-chip cost crisis is behind it. The company said the pace of memory price increases looked set to slow in the second half , a message that overshadowed an otherwise bruising quarter: Q2 revenue fell 6.1% year-over-year to RMB 108.9 billion ($16.15 billion), while adjusted net profit plunged 42.6% to RMB 6.2 billion . The rally signals that investors are now pricing in a turnaround — but the numbers still demand scrutiny.

  • A 43% Profit Drop That Still Sparked Optimism

Adjusted profit of RMB 6.2 billion missed the RMB 6.6 billion analyst consensus, as historically high memory costs squeezed margins . Yet the stock surged because President Lu Weibing said memory cost increases should moderate in Q3, with a possible return to a slow climb in Q4, and the overall impact on Xiaomi should stay "within a manageable range" . Shareholders are essentially betting that the earnings trough is now visible. If memory prices reaccelerate — Samsung has warned the RAM shortage could intensify through 2027 — that bet collapses.

  • Higher Phone Prices Paper Over Falling Volumes

Smartphone average selling prices (the typical revenue per phone sold) hit a record RMB 1,351, with premium devices accounting for 32.1% of China sales . But that came alongside a 26% year-over-year drop in shipments to 31.2 million units . Roughly half of Xiaomi's phones sell below $200, making it the most exposed among the top five phone makers to memory inflation . Higher prices protect margins today, but risk shrinking the budget-conscious customer base that built the brand.

  • The EV Business Is Growing, But Not Yet Profitable Enough to Compensate

Smart EV deliveries reached 104,199 units in Q2, up 28.2% year-over-year, with cumulative deliveries surpassing 500,000 . The EV, AI, and new initiatives segment posted RMB 24.9 billion in revenue with a 19.2% gross margin . That's encouraging, but R&D spending hit RMB 9.2 billion in Q2 alone — up nearly 19% year-over-year , and capital expenditures of RMB 3.6 billion remain heavy. Electric vehicles won't offset the smartphone pain until they scale further.

  • A Stock Down 51% in a Year Still Needs More Than a Hope Trade

XIACY has declined 51.2% over the past year , and CLSA cut its target price from HK$37 to HK$35 while trimming 2026 and 2027 profit forecasts by 3% and 8% . Today's bounce restores the stock only to early-August levels. The real proof point arrives in Q3: if memory costs truly ease and sequential profits climb again, the rally has legs. If not, investors are catching a falling knife with a slightly better grip.