Undervalued iFlytek: Can a profitable AI company be cheaper?

The Hong Kong stock market has recently hosted two major AI investment bonanzas in succession.

Zhipu AI went public on the Hong Kong Stock Exchange on January 8, 2026, with an issue price of 116.2 Hong Kong dollars. This company, which had annual revenue of only 312.4 million yuan in 2024, accumulated losses exceeding 6.2 billion yuan from 2022 to the first half of 2025, yet it surged dramatically in the capital markets. As of February 12, its share price skyrocketed to 402 Hong Kong dollars, surging 28.68% in a single day, with a market value reaching 179.2 billion Hong Kong dollars.

On the other hand, MiniMax went public on January 9 with an issue price of 165 Hong Kong dollars. On its first trading day, the closing price surged to 345 Hong Kong dollars, representing a staggering increase of 109.09%. Its revenue for the first three quarters of 2025 was approximately 376 million yuan, and it accumulated losses of 1.319 billion US dollars from 2022 to September 2025, showcasing a typical high-speed cash-burning model. As of February 12, its market capitalization reached 184.4 billion Hong Kong dollars.

These two AI newcomers in the Hong Kong stock market, one with annual revenue barely exceeding 300 million yuan, and the other with less than 400 million yuan in the first three quarters, are both still incurring losses and have yet to establish a stable profit model.However, the market has generously given them a sky-high valuation of nearly 200 billion Hong Kong dollars.。

Turning our attention back to the A-share market, iFlytek's revenue in 2024 was 23.34 billion yuan. The earnings forecast for 2025 confirmed that the annual revenue would continue to grow positively, with a net profit attributable to shareholders of between 785 million and 950 million yuan, making it a profitable AI enterprise. What about its market value? As of February 12, the company’s share price was 57.84 yuan, and the total market value was about 133.7 billion yuan.

Thus, it appears that two loss-making AI companies each have a market value approaching 180 billion Hong Kong dollars; whereas a profitable company is valued at less than 140 billion yuan.

Right at this time window, iFlytek's 4 billion yuan private placement plan had been approved by the Shenzhen Stock Exchange review center on February 12, with subsequent registration pending approval from the CSRC. The most intriguing part of this private placement,is not the 4 billion yuan itself, but Chairman Liu Qingfeng's personal choice.。

01 Voting with his own money.

According to the announcement, iFlytek's total fundraising amount for this offering will not exceed 4 billion yuan, with no more than 100 million shares issued, accounting for 4.33% of the total share capital. How the funds will be used: 2.4 billion yuan invested in computing power infrastructure platform construction, 800 million yuan for AI application implementation in the education sector, and the remaining 800 million yuan supplementing working capital. The offering targets no more than 35 specific investors, with pricing set at 80% of the average price over the 20 trading days preceding the first day of the issuance period.

The terms are standard and nothing particularly noteworthy; what deserves attention are Liu Qingfeng's own actions.

The subscribing entity is Yanzhi Technology, of which Liu Qingfeng holds 69.52% of the equity and is the actual controller. The subscription amount ranges from 250 million to 350 million yuan, with a clearly stated source of funds: personal capital. It is not corporate funding, not pledged financing, and does not involve any structured arrangements that shift risks, but comes directly from his own pocket.

Personal funds, no price preference, and an 18-month lock-up period where the shares cannot be touched. It is rare to see the actual controller of an A-share company participate in their firm’s private placement in this manner.

For any listed company, using corporate funds for strategic investment versus placing one's own money at stake reflects two completely different psychological states. In the former case, even if it fails, it’s only a write-down on the financial statements; in the latter, losses are real with no safety net. Liu Qingfeng’s Yanzhi Technology is willing to put in between 250 million and 350 million yuan — an amount that is significant for anyone.

Looking at the pricing mechanism, he does not participate in bidding. In A-share private placements, controlling shareholders or related parties usually negotiate favorable terms during pricing since the risk of share price fluctuations during the lock-up period is real. Securing a discount offers an added layer of protection. However, Liu Qingfeng has chosen to accept market-driven pricing, aligning with whatever price other investors bid.

Next, the lock-up period might be the most thought-provoking detail of the entire plan.

The standard lock-up period for A-share private placements is six months, which is the minimum regulatory requirement. Many private placement projects experience sharp stock price fluctuations around the time of lifting restrictions as participants exit to realize gains.Liu Qingfeng has set an 18-month lock-up period for himself, triple the standard duration.

What does 18 months mean? It means that from the completion of the private placement to when he can move these shares, he will have to endure at least six quarters of performance cycles. If the company underperforms or the share price falls during this period, he has no way to cut his losses on this investment.

Liu Qingfeng chose to enter at this juncture, with the 18-month lock-up starting upon the completion of the private placement, ending around mid-2027. This timeline covers several critical milestones: the official release of the 2025 annual report and the verification of H1 2026 earnings, among others.

An improvement in profits for one quarter could be dismissed by the market as a fluke, and two quarters may be attributed to base effects. However, if profit realization persists starting from 2025, cash flow improves continuously, and large-scale model revenues transition from bids to recurring contracts—With each additional quarter of validation, the market finds it increasingly difficult to continue defining iFlytek using the current valuation framework.

02 The profit inflection point has arrived.

Zhipu at 179.2 billion Hong Kong dollars, MiniMax at 185 billion Hong Kong dollars – these two figures at least prove one thing: the market is willing to pay top dollar for AI stories. iFlytek’s story has been overlooked not because it isn’t compelling, but because the company might have started making profits too early, and thus was squeezed into the valuation framework of traditional software companies.

Loss-making companies are valued based on their growth potential, while profitable companies are only assessed by their price-to-earnings (PE) ratio. This is a flaw in the market’s pricing framework, not an issue with the company’s fundamentals.。

According to the earnings forecast, iFlytek's net profit attributable to shareholders will reach 785 million to 950 million yuan in 2025, representing a year-on-year increase of 40% to 70%. The non-GAAP net profit will range from 245 million to 301 million yuan, with a year-on-year increase of 30% to 60%. Both GAAP and non-GAAP profits are growing simultaneously, which is a crucial detail — after stripping away one-time gains like government subsidies and asset disposals, the core business's profitability continues to strengthen. Moreover, revenue is still growing positively, and profits are not being achieved by cutting costs or reducing assets.

Additionally, looking at cash flow, iFlytek’s net operating cash flow exceeded 3 billion yuan in 2025, hitting a historical high; total sales receipts surpassed 27 billion yuan, also setting a new record.

These two record highs deserve further elaboration. In China’s A-share market, there are plenty of companies that see revenue growth without profit growth, and many others where profit grows but cash flow doesn't — their income statements look good, but they can't collect payments, leading to ever-mounting accounts receivable. Investors have seen this story play out too many times.

Especially for companies with a high proportion of B2B and B2G businesses, long payment cycles and slow collections are almost industry-wide issues. For many firms, profit growth ultimately gets stuck at the hurdle of “uncollectible payments.” In iFlytek’s business structure, B2B and B2G segments account for a significant share.However, 27 billion yuan in sales receipts and 3 billion yuan in operating cash flow indicate that the company’s operations remain robust and healthy.。

A deeper look at this earnings preview reveals some highly positive commercial figures.

In 2025, iFlytek secured contracts worth 23.16 billion yuan for large-scale model-related projects. According to the 'China Large Model Bid Monitoring and Insight Report (2025)' released by Smart Hyperparameter, this figure surpasses the combined total of the second to sixth largest companies in the industry. More importantly, these contracts will gradually be converted into recognized revenue over the next few quarters, forming a performance driver for 2026 and beyond.

On the consumer side, AI learning devices have captured the top spot in their category for three consecutive years—achieving the highest sales revenue during JD.com's and Tmall's 618 and Double 11 shopping events. What makes this category unique is that parents' purchasing decisions heavily rely on word-of-mouth and proven effectiveness—not something that can be achieved through price subsidies alone. In this field, only a handful of products have managed to rank first for three straight years.

The data from the open platform also deserves attention: the total number of developers has exceeded 10 million, including 1.27 million new developers working on large models who chose iFlytek’s platform for development in 2025—a figure larger than the entire developer base of most AI companies. Additionally, 564,000 overseas developers demonstrate that iFlytek's platform appeal extends beyond the domestic market. Lastly, there are 4.27 billion end-user devices covered.This means that applications developed on this platform naturally have access to an extensive distribution network.。

B-end secures 2.3 billion yuan in bids, C-end dominates its category for three consecutive years, with 10 million developers and coverage of 4.27 billion terminals. The market value corresponding to this performance stands at 131.4 billion yuan. When compared with several AI companies listed in Hong Kong whose stock prices have skyrocketed, the numbers speak for themselves without further explanation.

03 Conclusion

Sometimes the market makes a mistake—treating 'current profitability' as a negative factor while viewing 'ongoing losses' as a positive sign.

Unprofitable companies are often labeled as having 'room for imagination,' allowing their valuations to soar unchecked; meanwhile, profitable companies with tangible financial statements are scrutinized under a microscope, confined within traditional valuation models like PE and PEG, and weighed down significantly. This classification may sound absurd, but it undeniably influences capital flows.

Investors justify backing loss-making firms with the logic that 'it doesn't matter if they aren’t making money now—they’ll make big profits later.' However, for companies that have already started generating profits,profitability becomes a starting point for skepticism rather than a rewarded endpoint.。

The real turning point for the AI industry today is not about whose product launch is flashier or whose benchmark scores are higher, but about who can first complete the full closed loop of 'technology → product → revenue → profit.' In this chain, every arrow represents a filter — having technology doesn’t necessarily mean being able to create a product, having a product doesn’t necessarily mean generating revenue, and having revenue doesn’t necessarily mean converting it into profit.

Most AI companies are still stuck at the first two arrows, with the market’s valuation betting on their ability to navigate the subsequent arrows. However, iFlytek has already moved past the final arrow. The market values loss-making AI companies at HKD 180 billion, while iFlytek, which has completed the entire loop, is valued at RMB 133.7 billion — this price gap is simply due to a lag in perception.

iFlytek may not be the most glamorous AI stock; it lacks the narrative halo of 'changing the world from zero to one.' But for a company with growing revenue and profit, record-high cash flow, and large model contract wins far outpacing all competitors, its market cap is lower than that of two cash-burning startups. This makes it possibly the most undervalued AI company at present.

This valuation will be corrected sooner or later. $Iflytek Co.,ltd. (002230.SZ)$$KNOWLEDGE ATLAS (02513.HK)$$MINIMAX-W (00100.HK)$

Disclaimer: This article is intended for learning and communication purposes only and does not constitute investment advice.

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