China's AI chipmakers report first profits, but will the trend continue? Sky-high memory costs and other supply-chain difficulties lead major investment banks to pare margin forecasts. Further Reading Discover MORE stories on Before you go Published: 6:30pm, 6 Nov 2026 China's pure-play artificial intelligence chipmakers crossed an important milestone in the third quarter as several firms swung into profit, but severe supply chain hurdles and soaring memory costs cloud their long-term growth prospects. Domestic graphics processing unit (GPU) developers including Moore Threads, MetaX and Iluvatar CoreX are racing to fill the market void left by Nvidia, whose high-end processors face strict US export controls. These home-grown firms are competing fiercely to win over domestic enterprise clients and penetrate major cloud service providers (CSPs). Beijing-based Moore Threads, one of the "four little dragons" in China's GPU space, led the earnings turnaround, posting an adjusted net profit of 49.26 million yuan (US$7.4 million) for the quarter, driven by a 1,774 per cent year-on-year surge in revenue. It was the chipmaker's first profitable quarter. Shanghai-based MetaX recorded a net profit of 26.5 million yuan, marking its second profitable quarter of the year. The momentum faces headwinds, however. The domestic sector is grappling with an acute shortage of high-bandwidth memory (HBM), an indispensable component in the systems for training and running large AI models. As US export controls reduced supply, factory prices for 36GB HBM3e modules skyrocketed to more than US$4,000 on grey markets from around US$500 before the memory squeeze, according to recent supply-chain checks by Morgan Stanley. The cost surge threatens the margins that enabled the chipmakers' early profits. Moore Threads' gross margin contracted by more than 8 percentage points year on year in the first three quarters as it stockpiled expensive components. For MetaX, another little dragon, limited scale among tier-one CSPs makes absorbing these spikes even harder, despite raising prices for its flagship C600 processor, according to Morgan Stanley, which has lowered its 2027 and 2028 gross margin forecasts for the chipmaker. The industry's challenges extend beyond memory pricing to production and adoption delays. Although MetaX secured an order for around 20,000 units of its C600A variant from e-commerce giant JD.com, Morgan Stanley said that this provided "insufficient evidence of broader hyperscaler adoption", leaving the company reliant on government and regional computing projects. MetaX's Xiyun C600, which entered mass production earlier this year, pairs HBM3e memory with a precision architecture suited to model training. Volume shipments for MetaX's next-generation C700 processor could also be delayed until late 2027, risking a critical window to win over enterprise accounts, the bank said. Meanwhile, hardware rivalry is intensifying. Last month, Shanghai-based Iluvatar CoreX held a live demonstration of its new Tiangai 300 GPU, claiming it matched or even outperformed Nvidia's H200 in real-world AI workloads. Chipmakers focused on application-specific integrated circuits (ASICs) rather than GPUs also face operational strains. Cambricon Technologies, widely seen as one of China's leading alternatives to foreign AI hardware suppliers, is grappling with the financial weight of securing its supply chain. The company's inventory surged by 3.42 billion yuan quarter-on-quarter to 11.6 billion yuan at the end of September, leading to an inventory impairment loss of 502 million yuan over the first nine months of the year. Even so, Cambricon has quickly penetrated mainstream cloud infrastructure. Having delivered its MLU692 chip to a major CSP for testing in the third quarter, the company was projected by Morgan Stanley to ship nearly 350,000 units to CSP clients next year alongside the roll-out of its next-generation MLU580. In a recent research note, Goldman Sachs analysts said long-term survival for Chinese AI chipmakers would hinge on sustaining profitability while improving local fabrication capacity and production yields. Despite immediate supply challenges, Nomura analysts argued in a report last month that financial markets continued to underestimate "both the breadth of AI demand and the earnings that such strong demand can generate across the value chain". They added that sustained cuts to computing commitments or significant delays to funded projects would challenge that outlook. Ann Cao is a Shanghai-based technology reporter for the Post, covering technology start-ups and policies in the city and eastern China. She graduated from the University of Hong Kong with a master's degree in journalism. related topics

JD.com: improving margins, narrowing losses, and A depressed valuation. Summary. * JD.com is rated buy, trading at a 47.75% discount to sector P/E despite rising retail margins and shrinking food-delivery losses. * Q2 FY2026 marked a turning point: non-GAAP net income rose 20.8% YoY to RMB8.9B, driven by retail margin expansion and lower New Businesses losses. * Advertising and commission revenues are growing faster than product sales, boosting JD Retail's gross margin for the 17th consecutive quarter. * JD's robust net cash position funds buybacks, while management guides for accelerating profit growth and long-term high single-digit retail margins. Intro. JD.com's (JD) 2025 was dominated by its entry into the food delivery market, and FY2025's 43.5% decline in Non-GAAP net income reflected a sharp increase in the New Businesses segment's loss. In Q2 FY2026, narrowing losses and continued margin improvement at JD Retail helped return the group to YoY profit growth. Non-GAAP net income grew 20.8% YoY to RMB 8.9B, even while revenue fell 2.9% YoY, supported by lower marketing spending and JD Retail's 17th consecutive quarter of YoY gross margin expansion. JD Retail's operating income still declined, making a return to revenue growth an important next step. Given JD's substantial liquidity and ongoing share repurchases, we believe its current Non-GAAP FWD P/E of 8.30x, a 47.77% discount to the 15.89x sector median, offers an attractive entry point if the loss reduction continues. Business overview. JD currently separates its business into 3 parts. JD Retail is the core online retail business selling directly to Chinese consumers. This is primarily a first party business, though there is also a marketplace business where JD takes a commission and sells advertising. JD Logistics includes internal and external logistics services and acquired the local on-demand delivery business in October 2025. Since Q1 FY2026, certain on-demand delivery revenues previously recognized by New Businesses have been recognized by JD Logistics. New Businesses is the home of the Food Delivery business, the lower tier city platform Jingxi, JD Property and overseas businesses including Joybuy. JD's first party business has the advantage of being able to control authenticity, logistics and after sales, by buying and holding inventory in high ticket items like electronics, household appliances and even supermarket products. This allows JD to offer brands a premium channel to sell to Chinese customers, and in July they signed up to be the exclusive official e-commerce partner of Costco in China. The Q2 FY2026 results release also highlighted a new CHANEL flagship selling perfume, makeup and skincare. While we don't know the financial terms of these agreements, they are a sign that JD's relationships with brands are strong. The margins on commissions and advertising are far higher than product sales, and their faster growth can help JD Retail grow gross margins. In Q2 FY2026, marketplace and marketing revenue grew 8.3% YoY while product revenue declined. Total services revenue accounted for 22.9% of group revenue, up from 20.8% last year, though this also includes logistics and other services. More directly supporting the marketplace opportunity, 3rd party GMV has grown faster than 1st party GMV for the 3rd consecutive quarter. Supermarket, the largest general merchandise category, is also growing at a near double-digit rate, helping diversify JD's product sales beyond electronics and home appliances. Food-Delivery losses shrink as retail margins keep rising. JD currently has 2 main ways to grow profit. The first is reducing the loss in New Businesses, which peaked in Q3 FY2025 at RMB 15.7B and has since decreased for 3 consecutive quarters to RMB 9.9B in Q2 FY2026. This is down ~37% vs. the peak and ~33% vs. last year. As CEO Sandy Xu explained through an interpreter on the Q2 FY2026 earnings call, "We saw subsidy per order notably decreased year-on-year, enhanced delivery efficiency at scale and growing contribution from commissions and advertising revenues." While the lower subsidy per order is dependent on competitors staying rational, and so won't necessarily last, delivery efficiency and commissions and advertising may also help. As Ian Su Shan, the CFO, said, "Q2 marks a definitive turning point for our consolidated profitability, and we are confident in sustaining this expanding profit trajectory as we move forward." These figures refer to the New Businesses segment as a whole, rather than food delivery alone. Management said food delivery's loss decreased by more than 50% YoY in Q2, while spending on other businesses offset part of that improvement. This distinction matters because better food-delivery economics will not necessarily translate into an equally large reduction in the segment's total loss. The second was the improvement in JD Retail's gross margin, which increased by 126bps YoY to 18.53% in Q2 FY2026 despite the segment's revenue decline of 4.7%. At the group level, marketing expenses improved by 170bps YoY to 5.9% of revenue, while the fulfillment and R&D expenses increased by 90bps and 60bps, respectively. The Group's Non-GAAP operating income surged from RMB 0.9B to RMB 5.5B. The reduction in the New Businesses loss was much smaller in Q2 FY2026, down by ~5% vs. Q1 FY2026, than in Q1 FY2026, when it decreased by ~30% vs. Q4 FY2025. Increased spending on Joybuy and Jingxi offset part of the improvement in food delivery. Management said that spending on Joybuy will increase with the number of orders. Financial overview. JD's revenue in Q2 FY2026 decreased by 2.9% YoY to RMB 346.4B, mostly due to the decline in the electronics and home appliances sector of 11.8% YoY (in Q2 FY2025 the sector benefited from the national trade-in subsidies in China), which was partially offset by the growth in the general merchandise of 5.6% YoY and in the marketplace and marketing revenue of 8.3% YoY (though the latter slowed down significantly from 18.8% YoY in Q1 FY2026). JD Retail's operating income decreased by RMB 461M YoY, but its operating margin increased by 7bps YoY to 4.56%, as gross margin expansion and marketing efficiency helped cushion the revenue decline. This shows margin resilience, although it has not yet translated into growth in the segment's absolute operating income. JD's Non-GAAP diluted EPS per ADS increased to RMB 6.29 vs. RMB 4.97 a year ago, helped by the decrease in the diluted weighted number of shares outstanding by 5.2% YoY. Management didn't provide near-term numerical guidance, but CEO Sandy Xu said on the Q2 FY2026 earnings call: "Heading into Q3, we expect JD Retail to hit a turning point, reaccelerating into positive top line expansion while sustaining a healthy bottom line." CFO Ian Su Shan said: "We are confident that our food delivery business will continue to see meaningful year-on-year loss reduction throughout the rest of the year." Moreover, in the Q&A section (interpreted) the management guided for an acceleration in the Group's profit growth in the second half of the year and said that the company continues to target a high single-digit operating margin for JD Retail in the long-term (in H1 FY2026 it was ~5%). In Q3 FY2025, JD's electronics revenue grew by only 4.9% YoY, and the Group's Non-GAAP net income was RMB5.8B. The New Businesses loss was RMB15.7B, compared with RMB9.9B in Q2 FY2026. If that loss remains near the latest quarter's level, it would provide a substantial YoY operating profit tailwind. However, this is a scenario rather than guidance, and the benefit would not flow directly into net income because retail profitability, other income and taxes also matter. JD Retail's Q3 FY2025 operating margin was 5.92%, making the corresponding quarter last year the more relevant benchmark for Q3 than Q2's promotional-season margin. At the end of Q2 FY2026, JD had RMB 235.1B in cash and cash equivalents, restricted cash, and short-term investments vs. RMB 69.9B in debt. This leaves approximately RMB 165B (~USD 24.3B) after subtracting the stated debt, although the liquidity total includes restricted cash and should not be treated as entirely available for buybacks. In addition, the company had investments in the equity method and others of ~RMB 96B, which are separate from cash and may not be readily monetized. In the trailing 12 months, the company generated free cash flow of RMB 31.4B vs. RMB 10.1B a year ago. In H1 FY2026, the company increased its payables by RMB40.6B and its inventory by RMB19.1B. These movements supported and consumed cash, respectively, although the different reporting periods mean they do not directly reconcile the trailing FCF improvement. We would therefore watch whether cash generation remains strong as working capital normalizes. In H1 FY2026, the company also repurchased ~2.5% of its outstanding shares, and it has USD 1.0B left from the repurchase program. Finally, on November 3rd, JD received conditional approval from the EU for acquiring the majority of the German consumer electronics chain CECONOMY (it owns MediaMarkt and Saturn stores in Europe). JD expects to start consolidating CECONOMY's revenue after closing in Q4 FY2026 (it has already secured 59.8% of the company). Valuation. At current prices, they trade at a Non-GAAP FWD P/E of 8.30x compared to a sector median of 15.89x, representing a 47.75% discount. Additionally, they have a FWD P/S of 0.18x compared to a sector median of 0.86x, representing a 79.20% discount. On top of this, they also trade at a FWD P/CF of 6.25x compared to a sector median of 10.25x, implying a 39.00% discount. As a Cayman holding company utilizing a VIE structure, highly exposed to China's consumption and willing to sacrifice profits for market share in 2025, JD deserves a valuation discount to some extent. We therefore view the sector median as a reference point rather than a fair-value target. However, JD's favorable trends support our Buy rating: its Retail segment's gross margin is increasing; its food delivery business's loss is decreasing YoY; and share repurchases are reducing its outstanding share count. At the current valuation, an investment in JD does not require a full rerating towards the sector median but rather further proof that their earnings trajectory is sustainable which can provide some level of multiple expansion. We would reassess our thesis if JD Retail fails to return to positive revenue growth, food-delivery subsidies rise materially, or spending on Joybuy and Jingxi absorbs the benefit of narrowing food-delivery losses. Risks. The main risk for JD is that the battle in the food delivery and/or instant retail sector flares up again, and JD takes a page from 2025, when it expanded its New Businesses segment's loss from RMB2.9B to RMB46.6B. While China has amended its Anti-Unfair Competition law to target destructive price competition, it's hard to say whether it will be effective. Other risks are that the component prices continue to increase, resulting in more negative demand for electronics, which will make it harder for JD to match its Q3 FY2025 Retail segment's margin of 5.92%; CECONOMY doesn't go well, as JD not only has to integrate the business, it will also have to recognise more low-margin revenue from its stores in Europe; and its favourable working capital movements reverse, impacting its FCF. Other risks include those related to its VIE structure, the US' stance on inspections of its auditors, its weighted voting rights structure, RMB exchange rate, food safety-related penalties (regulators already fined the company RMB635M this year), and China's consumption remaining soft. Conclusion. JD is a first party retailer that has deep relationships with the brands it represents. With marketplace and marketing revenue growing faster than product sales, JD Retail has increased its gross margin YoY for the past 17 quarters. We think the company is attractively valued at a Non-GAAP FWD P/E of 8.30x, especially if narrowing food-delivery losses and ongoing buybacks support further earnings growth. We rate JD as a Buy. In Q3 FY2026, we will watch whether Retail revenue returns to growth, gross margin continues to expand, and food-delivery loss reduction translates into a smaller total New Businesses loss despite spending on Joybuy and Jingxi. My research is based on key market themes and works to identify setups that provide asymmetrical risk/reward profiles within these niches. My portfolio is currently built around 5 key themes: (1) Semiconductor Supply Chain, (2) Grid / Power / Energy Transition, (3) Critical Materials, (4) Biotechnology, and (5) Artificial Intelligence / Cloud Computing. My investment style blends deep value investing tenets learned through my experience at a formal investment firm with the forward-looking lens necessary to find highly asymmetric opportunities in the market. Through my articles, I aim to provide valuable perspectives and build a community of like-minded investors who can benefit from each other's knowledge. Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. 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