China Tech Earnings Week: Profits Fall, Stocks Rise — What the Market Is Actually Pricing
Two of the most closely watched China tech names are reporting within 24 hours of each other, and the market dynamics around both are telling a more nuanced story than the headline numbers suggest.
PDD: The Miss That Wasn't
PDD Q1 2026 results came in with a surface-level negative read. Revenue grew 12.5% year over year, well below the 20%+ consensus estimate. Net income attributable to shareholders fell 11% year over year to RMB 24.5 billion (USD 3.5 billion). Non-GAAP net income fell 12%. By conventional standards, this was a weak quarter.
The stock moved higher after the release. The explanation is mechanical: diluted EPS came in at USD 2.36 against a consensus of approximately USD 2.13. Short interest was elevated going into the print. When the number beat on EPS without the revenue collapse that some had feared, short covering drove the initial move.
The strategic question for PDD is structural, not quarterly. Temu's international operations simultaneously face European regulatory scrutiny, US tariff pressure, and Chinese regulatory oversight. Management has not broken out Temu's revenue or margins separately. Investors are essentially flying blind on the economics of the international business. Until that disclosure improves, modelling PDD's profitability trajectory with precision is not possible.
Xiaomi: The Floor May Be In
Xiaomi reports Q1 2026 tonight with the stock down 24% year-to-date and approximately 50% below its peak. Analyst consensus sits at roughly RMB 100-101 billion in revenue and EPS around 0.175 yuan. The Q1 seasonality headwind is well understood by the market.
The key metric is auto gross margin. Q4 2025 printed at 22.7%, down from 25.5% in Q3, driven by a weaker model mix with fewer SU7 Ultra deliveries. Q1 is when the new SU7 generation began scaling. A recovery toward 24-25% would confirm the Q4 dip was mix-related rather than structural, and would represent a positive inflection in the EV margin narrative.
April 2026 EV deliveries hit a record 30,000 units. Xiaomi has committed to 550,000 deliveries for the full year and RMB 200 billion in R&D investment over the 2026-2030 period. The long-term capital allocation signal is positive. The near-term question is whether Q1 margins confirm the trajectory.
The Market Signal
Both stocks share a common setup: expectations have been marked down significantly ahead of the print, creating asymmetric reaction potential to upside. PDD's stock rising on a profit decline demonstrates how thoroughly the market had discounted a worse outcome. Xiaomi's 24% YTD drawdown sets a similar dynamic.
For investors with exposure to China tech, this week's prints are a test of whether the de-rating has been sufficient or whether there is further fundamental deterioration ahead. The PDD result suggests at least partial stabilisation of expectations. Xiaomi's print tonight will tell the rest of the story. 🔥
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