Kingsoft Cloud revenue rises 37% on AI demand, but infrastructure investments squeeze margins

Kingsoft Cloud Holdings (NASDAQ:KC) reported a 37.2% year-over-year surge in total revenue for the first quarter of 2026, driven by expanding artificial intelligence demand and deeper penetration into enterprise accounts.

However, the company’s aggressive build-out of high-performance computing infrastructure created a sequential squeeze on profit margins.

Total revenue for the period ended March 31, 2026, reached RMB2,703.7 million ($392 million), down slightly by 2.1% from the final quarter of 2025 due to seasonal factors.

The company's top-line momentum was anchored by its public cloud services division, which grew 47.5% year-over-year to RMB1,996.3 million ($289.4 million), reflecting sustained scaling among customer ecosystems including Xiaomi and Kingsoft.

Enterprise cloud revenue rose a more modest 14.7% year-over-year to RMB707.4 million ($102.6 million), though it dropped 17.6% sequentially as Chinese New Year holidays and project delivery timelines slowed deployment schedules.

The infrastructure required to feed escalating AI workloads came at a significant premium.

Kingsoft Cloud's cost of revenues climbed 42.8% year-over-year to RMB2,358 million ($341.8 million).

This uptick was characterized by a 26.1% increase in internet data center (IDC) costs to RMB 911.1 million, alongside a sharp rise in depreciation and amortization expenses, which more than doubled to RMB818.9 million due to newly acquired and leased AI servers.

Consequently, the company’s quarterly gross margin contracted to 12.8%, down from 16.2% in the same period last year and 16.9% in the previous quarter.

Gross profit for the quarter was RMB345.7 million ($50.1 million).

Despite the margin compression, tighter management of overhead helped stabilize the bottom line.

Total operating expenses fell 7.4% year-over-year to RMB511.9 million ($74.2 million), aided by lower share-based compensation and a reduction in personnel expenses across research and development, which fell 14.5% to RMB193.3 million.

This cost discipline allowed Kingsoft Cloud to narrow its quarterly operating loss to RMB166.1 million ($24.1 million), marking a 29.1% improvement from the RMB234.2 million loss reported in the first quarter of 2025.

Sequentially, the operating loss widened from RMB66.5 million in the fourth quarter of 2025, driven by the lower gross profits.

On a non-GAAP basis, the company recorded an operating loss of RMB59.8 million ($8.7 million) for the quarter, compared to a non-GAAP operating profit of RMB 54.6 million in the prior quarter.