Kingsoft Cloud (KC) Q2 2026 earnings review
Historic GAAP Profitability Reached on Back of Massive AI Cloud Surge
Kingsoft Cloud delivered a record Q2, generating RMB 3,072.0 million in revenue (up 30.8% YoY) and achieving its first-ever positive GAAP operating profit (RMB 23.0 million). The top line was carried entirely by the Public Cloud segment, where AI cloud gross billings rocketed 82% YoY to RMB 1.33 billion. However, underneath the headline growth, the Enterprise Cloud segment actually contracted, exposing a one-dimensional growth narrative. Management executed impressively on operational efficiency, reversing last quarter's margin compression to post a record 4.0% adjusted operating margin. Still, cash burn remains a looming shadow, as aggressive capital expenditures of RMB 3.3 billion outpaced the company's shrinking RMB 4.67 billion cash pile.
🐂 Bull Case
Achieving positive GAAP operating profit is a massive milestone. Adjusted operating margin hit an all-time high of 4.0%, and adjusted EBITDA margin expanded to a massive 35.8%, proving the AI infrastructure model can scale profitably.
AI cloud gross billings are Accelerating, growing 82% YoY to RMB 1,327 million and now comprising 56% of total public cloud revenue. KC has successfully positioned itself as a primary beneficiary of AI infrastructure expansion.
🐻 Bear Case
Q2 CapEx was RMB 3.3 billion, while total cash dropped to RMB 4.67 billion. To meet the previously guided FY26 CapEx target of RMB 15-20 billion, external funding or massive operating cash flow improvements will be necessary.
While Public Cloud soared, Enterprise Cloud revenue declined 1.3% YoY. The lack of diversification means any deceleration in AI infrastructure spending could severely damage the company's overall top line.
⚖️ Verdict: 🟢
Bullish. Achieving GAAP operating profitability removes the largest overhang on the stock. While CapEx remains aggressive and the Enterprise segment is lagging, KC's ability to extract 35.8% adjusted EBITDA margins from its AI cloud buildout justifies the investment cycle.
Key Themes
Macro Tailwinds Propel AI Cloud Hypergrowth
Accelerating. The broader macro pivot toward AI integration continues to act as a massive tailwind. AI cloud gross billings surged 82% YoY to RMB 1,327 million, up sequentially from RMB 1,000 million in 26Q1. AI now makes up 56% of public cloud revenue, cementing Kingsoft Cloud's transition from a traditional storage/CDN provider into a specialized intelligent computing infrastructure platform.
Margin Compression Trend Defeated
Reversing. In Q1, adjusted gross margins compressed sharply to 13.0%, raising fears about pricing power against rising chip costs. Q2 completely dispelled this fear. Adjusted gross margin rebounded to 15.4%, and adjusted operating profit flipped from a RMB 59.8 million loss in Q1 to a record RMB 124.0 million profit. Management clearly demonstrated pricing power and operational leverage over their newly deployed computing clusters.
Model-as-a-Service (MaaS) Accelerating Adoption
Accelerating. Management explicitly credited incremental contributions from its MaaS offerings for driving Q2 results. By providing higher-margin, token-based inference solutions rather than just raw bare-metal training clusters, KC is moving up the value chain, insulating itself from pure infrastructure commoditization.
Enterprise Cloud Contraction Contradicts Headline Growth
Reversing. Despite celebrating record 30.8% total revenue growth, a deeper look reveals structural weakness. Enterprise cloud revenue slipped 1.3% YoY to RMB 714.3 million. This segment previously grew 14.7% YoY in Q1. This sharp contraction contradicts the narrative of broad-based digitization demand, showing that outside of the AI public cloud segment, the company's traditional enterprise software IT services are struggling to gain traction.
Severe Capital Expenditures Draining Cash
Stable. The financial toll of competing in the AI infrastructure space is massive. Q2 capital expenditures (including capitalized leases) hit RMB 3.3 billion, up sequentially from RMB 3.0 billion. Consequently, cash and cash equivalents plunged from RMB 6.0 billion at the end of 2025 to RMB 4.67 billion. Given previous management guidance of RMB 15-20 billion CapEx for FY26, the current balance sheet looks insufficient to fund this organically.
Depreciation and Component Inflation
Accelerating. The cost of running vast AI infrastructure is weighing heavily on the GAAP bottom line. Depreciation and amortization costs rocketed 74.6% YoY to RMB 963.8 million, while IDC (Internet Data Center) costs increased 23.3% to RMB 990.1 million. While KC achieved GAAP operating profit, these rigid fixed costs elevate the breakeven threshold and increase the risk profile if AI demand experiences any cyclical slowdown.
Other KPIs
Accelerating. Non-GAAP EBITDA surged dramatically from RMB 406.0 million in Q2 2025 to RMB 1.1 billion this quarter. The EBITDA margin expanded to 35.8%, up from 17.3% a year ago, reflecting massive operating leverage on AI computing resource utilization.
Accelerating. Up 29.6% YoY, driven primarily by continued investment in AI computing resources. Despite the steep increase in absolute terms, it grew slower than the top-line revenue (30.8%), allowing gross margins to expand.
Decelerating. Dropped an impressive 58.7% YoY from RMB 339.6 million. This was mainly due to decreased credit loss expenses and lower share-based compensation, proving management is exerting strict control over back-office costs to fund AI investments.
Key Questions
Enterprise Cloud Contraction Strategy
With the Enterprise Cloud segment actively shrinking by 1.3% YoY despite broader digital transformation trends, is Kingsoft Cloud intentionally reducing focus on traditional software IT projects to reallocate capital to AI, or is this purely a competitive loss?
Funding the CapEx Void
CapEx and leased assets totaled RMB 3.3 billion this quarter, while total cash sits at RMB 4.67 billion. Given previous guidance of RMB 15-20 billion in FY26 CapEx, how will the company bridge this funding gap over the next two quarters without aggressive equity dilution?
Depreciation Run-Rate
D&A costs surged 75% YoY to nearly RMB 1 billion this quarter. As you deploy the remainder of your massive FY26 CapEx budget, what is the expected terminal run-rate for D&A as a percentage of revenue?
Ecosystem vs External Demand Split
AI Cloud billings are soaring, but the current earnings release omitted the specific revenue contribution from the Xiaomi/Kingsoft ecosystem. What percentage of the RMB 1.33 billion in AI gross billings is currently driven by external third-party enterprise customers?