• Kingsoft Cloud is capitalizing on China’s AI boom by focusing on high-margin AI services and leveraging a partnership with Xiaomi.
  • The stock has surged by more than 500% in the past year, including a 50%+ spike following the emergence of DeepSeek.
  • Analysts remain largely bullish on the company. But after its meteoric rise, much of the stock’s near-term upside may already be priced in.


While DeepSeek basks in the world’s attention, another Chinese AI company is quieting positioning itself for big things—Kingsoft Cloud.

At times overshadowed by tech giants like Alibaba and Tencent, Kingsoft has found its niche by enabling AI infrastructure, making a strategic pivot and forming a partnership with Xiaomi. And thanks partly to the bright future of AI, Kingsoft’s stock has surged more than 500% in the last year. But has the rally pushed the company’s valuation to an unsustainable high? Let’s review the story of Kingsoft’s growth, assess the company’s valuation and contemplate what investors can expect next. 


Kingsoft’s pivot


Kingsoft Cloud Holdings (KC), a prominent player in the Chinese cloud computing industry, provides a wide range of cloud services, such as infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS). The company operates predominantly in China, where cloud adoption has been growing rapidly. And because of the critical role of cloud infrastructure in supporting AI advances, Kingsoft Cloud has pivoted toward AI-focused services, positioning itself as a key enabler of AI growth in China. 


The company’s close ties to Xiaomi, a leading Chinese consumer electronics company, have strengthened Kingsoft’s position in the cloud market. Xiaomi, which is expanding its AI-powered business in areas like smart homes, vehicles and internet of things (IoT), relies on Kingsoft Cloud for infrastructure. This partnership positions Kingsoft as an option for businesses seeking independent cloud infrastructure to support AI, distinct from major tech giants like Alibaba (BABA) and Tencent (TCEHY). As a result, Kingsoft has strengthened its financial position, in part because it’s also optimizing operations and moving away from legacy (e.g. lower margin) offerings. 


Plus, the DeepSeek phenomenon has raised the profile of the entire Chinese tech sector. in early 2025. DeepSeek’s January release of its R1 open-source model, has generated garnered considerable attention in the markets. This focus on AI has made investors optimistic in China, driving Kingsoft Cloud’s stock price up more than 60% year-to-date. Now, the company stands at a crossroads—it can capitalize on its considerable AI capabilities but faces significantly higher expectations for its performance.


Impressive growth, but still unprofitable


Kingsoft delivered impressive earnings results in Q3 2024 and demonstrated strong year-over-year growth. Revenue reached $269 million, a 16% increase from the same quarter last year. This growth was propelled by the 31% increase in public cloud revenue to $164 million, alongside a 17% rise in enterprise cloud revenue to $99 million. Notably, AI revenue surged by nearly 600% year-over-year, reaching $51 million, and now accounts for 31% of public cloud revenue. This dramatic growth in AI reflects the company’s successful shift toward higher-margin services. Moreover, adjusted gross profit also rose 57% to $43 million, while the adjusted EBITDA margin expanded to 9.8%—a substantial improvement from the previous year.



Yet, despite those positive trends, Kingsoft is still operating at a loss. On a GAAP basis, the net loss for Q3 was $151 million, compared to a net loss of $131 million in the same quarter last year and $49 million in Q2 2024. However, when excluding certain non-cash items and one-time charges, the non-GAAP net loss for Q3 narrowed to $34 million, a material improvement from the $43 million loss in the same period last year. This narrowing of the non-GAAP loss can be attributed to stronger revenue and tighter control of expenses. 


Qualitatively, the company’s focus on AI and its strategic partnership with Xiaomi were highlighted during the Q3 earnings call. The Xiaomi partnership, which has helped drive revenue growth, remains a key differentiator for Kingsoft. Xiaomi-related revenues were about 36% higher in Q3 than in the same quarter last year. Kingsoft’s attempts to scale down its lower-margin content delivery network (CDN) services, have also contributed to the expansion in margin But the challenge is to convert improvements into sustained profits.


Valuation benefits from DeepSeek

Kingsoft doesn’t offer a straightforward case for its market cap of $4 billion. Because of continuing losses, investors can’t examine the company through the lens of the price/earnings (P/E) ratio. However, some additional data provides insight. 


The company’s price-to-sales (P/S) ratio stands at 3.9, slightly above the sector median of 3.4, indicating the stock is priced at a modest premium relative to the revenue it generates. Meanwhile, its price-to-book (P/B) ratio is notably high at 5.5, compared to the sector median of 3.5. While this premium isn’t unusual for high-growth tech stocks, it reflects the risk associated with Kingsoft’s valuation and the uncertainty surrounding its ability to turn a profit. 

Despite those negatives, analysts are largely positive about the stock. Of the 10 analysts covering shares of Kingsoft, seven rate it a “buy,” and in the wake of Q3 earnings, the company received several notable upgrades. In early December, UBS upgraded shares of Kingsoft Cloud to “buy” from “neutral,” while also raising the price target from $4.20 per share to $12.50 per share. Nomura likewise upgraded the stock from “neutral” to “buy” but assigned it a more conservative price target—closer to $7 per share. In early 2025, shares of Kingsoft have already blown through those targets and now trade closer to $17 per share, as illustrated below. 


Kingsoft’s meteoric rise has been largely driven by the AI boom. But the most recent surge seems to be directly tied to DeepSeek’s emergence, and the renewed spotlight on China’s tech scene. Since DeepSeek shook up the global markets on January 27, Kingsoft’s stock has soared 50%, illustrating just how intertwined the company’s fortunes are with the broader AI sector. If the AI-driven optimism continues to dominate, Kingsoft looks primed to benefit. 

However, the broader stock market may be edging into bubble territory, with signs of overvaluation creeping into certain sectors. This concern is amplified by Kingsoft’s fast ascent—climbing well past analyst price targets. Speculation appears to be driving shares up with an expectation that the company will reveal a positive surprise in its upcoming Q4 report. But there’s no guarantee that will come to pass. 


That means Kingsoft’s future depends upon market sentiment, as opposed to fundamentals. For those bullish on AI’s long-term potential and the continued tech rally, Kingsoft may therefore present an enticing growth story. Conversely, those cautious about an overheated market may view the stock as too risky, given its speculative nature and uncertain path to profitability.


Strong potential, but risks are elevated


Two emerging trends have propelled Kingsoft into the spotlight: China’s explosive AI sector and its rapidly expanding the cloud computing market. By pivoting to high-margin AI services and forging a partnership with Xiaomi, the company has positioned itself as a vital player in the country’s tech evolution. Kingsoft is capturing the attention of investors eager to tap into the technological advances playing out in mainland China. 


While analysts are largely optimistic on Kingsoft, the stock’s torrid ascent suggests some of its near-term potential may already be priced in. That means bullish investors are likely banking on an upside surprise during a coming earnings report. In that regard, Kingsoft shares appear to represent a speculative bet on the future of AI instead of a reflection of the company’s true fundamentals. For investors confident in AI’s long-term growth and the broader market rally, Kingsoft may therefore offer compelling upside. However, for those concerned with potential overvaluation in the market, the risk in this particular stock may outweigh the rewards. 

Andrew Prochnow has more than 15 years of experience trading the global financial markets, including 10 years as a professional options trader. Andrew is a frequent contributor Luckbox magazine.

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