"Big Banks" UBS: Kingsoft Cloud benefits from Xiaomi's AI investment, raises target price to 18.5 yuan

According to a report by UBS, driven by ongoing model training and rapidly growing inference workloads, Kingsoft Cloud (03896.HK) will be a direct beneficiary of the rising demand for artificial intelligence this year. It also believes that Kingsoft Cloud is less affected by industry headwinds such as regulatory policies, macroeconomic uncertainties, intensified competition, and AI disruption.

The bank expects the company to benefit from increased AI investments by Xiaomi (01810.HK) to support large language model training and accelerate adoption, which may lead to an increase in its related party transaction capital expenditures this year. However, it anticipates that revenue contributions from the Xiaomi ecosystem will decline, as demand from third-party clients in verticals such as AI, internet, autonomous driving, robotics, and fintech may show stronger growth. However, the tight supply chain for key computing hardware may affect the company's capacity to meet demand, but it will also support a favorable pricing environment.

UBS raised its revenue forecasts for Kingsoft Cloud by 16% for the first quarter and 12% for the full year, with the first quarter non-GAAP operating loss rate narrowing to 1.7%, and a positive operating profit margin of 0.6% for the full year. The bank maintains a "Buy" rating on the stock, raising the target price from HKD 16.5 to HKD 18.5