Detailed narrative
AI Cloud Market Evolution and Strategy
The AI cloud market is evolving with rapid growth in open-source models, creating significant opportunities for neutral cloud providers. Kingsoft Cloud is accelerating its AI cloud mass and FTE businesses, focusing on technology leadership and high-quality sustainable growth. The company's strategy involves offering top models and stable services to customers as a neutral player, adapting to the increasing use of agentic scenarios.
Public Cloud Performance and Ecosystem Growth
Public cloud revenue reached RMB 2.36 billion, marking a 45% year-over-year increase. This growth was significantly driven by the Xiaomi and Kingsoft ecosystem, with public cloud revenue from this segment growing 54% year-over-year in the first half. Shareholders approved an increase in annual caps for connected transactions with Xiaomi to RMB 10 billion for 2026 and 2027, indicating continued strategic alignment and growth opportunities.
Enterprise Cloud Dynamics and Strategic Shift
Enterprise Cloud revenue was RMB 710 million, experiencing a 1% year-over-year decline. This deceleration is attributed to several factors: upstream supply pricing hikes affecting customer budgeting and delaying decision-making, strong seasonality with revenue recognition concentrated in the second half of the year, and a proactive strategic adjustment from a project-based to an operating-based business model, which reclassifies some revenue to public cloud.
Technology and Product Upgrades
Kingsoft Cloud continues to enhance its full-stack AI capabilities for intelligent computing and AI application deployment. Key advancements this quarter include optimizing model deployment on its platform for high concurrency inference, launching 'Agent kits' to help enterprises build production-grade AI agents, and enhancing its training and inference platform for more flexible resource scheduling. The Galaxy Stack platform also achieved deep integration with multiple mainstream domestic AI chips.
Chip Procurement and Capital Investment
Chip procurement faces ongoing supply constraints, which management views as a 'new norm.' The company is mitigating this challenge by diversifying business partners and suppliers, and increasing compatibility with made-in-China chips, particularly for model inference use cases. Capital expenditures, including right-of-use assets, reached RMB 3.3 billion this quarter, with the full-year CapEx base case maintained at RMB 6.2 billion, reflecting continued strategic investment in AI compute capacity.
Mass Business and Profitability Drivers
The mass business, particularly Model-as-a-Service (MaaS), is experiencing strong demand, especially from open-source models and made-in-China models, which are favored for day-to-day tasks. The company has launched agent products to cater to agentic scenarios. While the mass business offers better profitability, it is more volatile. Kingsoft Cloud balances this with its computing power business, which provides stable, long-term contracts and 100% utilization.
Pricing Trends and Operational Efficiency
Kingsoft Cloud has successfully implemented price increases for core solutions like storage and computing power in its AI cloud business. Due to its specific capabilities and customer acceptance, the company has been able to pass through cost increases and, in some cases, improve profitability. This strategy, combined with enhanced operating efficiency, contributed to the adjusted gross margin rising to 15.4% and the adjusted operating profit turning positive at 4.0%.