Tuya Inc

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涂鸦智能2026Q1业绩直播

Key Takeaways (AI-Generated)

Financial Performance

- Total revenue increased 8.3% year-over-year to $80.9 million in Q1 2026

- GAAP operating margin reached 9.2% with significant improvement; non-GAAP operating margin was 10%

- Net margins improved to 19.5%, reflecting continued optimization in operating efficiency

- PaaS business generated $59 million; AI application segment generated $11.6 million

Business Highlights

- Launched AI-powered applications including Smart Life Assistant, Tuya AI, and AI Security Guardian

- Smart door lock business achieved 73% year-over-year growth driven by AI capabilities

- AI revenue from video-enabled locks increased 500% year-over-year

- Registered AI developers exceeded 1.96 million with platform documentation views over 340,000

Financial Guidance

- Expects recovery in smart home and robot products segment by end of Q2 or Q3 2026

- Anticipates natural recovery in AI applications usage starting in Q2 after seasonal decline

- Plans continued disciplined expense management while investing in core AI development

Opportunities

- Growing demand for AI energy smart electrical systems in European markets

- Accelerating transition of AI capabilities from platform to application layer development

- Securing multiple channel partnerships and orders through exhibition participation

- Emerging opportunities in Southeast Asia for energy management and spatial intelligence

Risks

- Ongoing global chip shortage affecting value chain and pricing strategy implementation

- External environment uncertainties and regional disruptions impacting business operations

- Supply chain cost variations requiring strategic inventory management and customer cost pass-through

- Significant cost increases in camera sectors affecting consumer purchasing decisions

Full Transcript (AI-Generated)

Operator

Good morning and good evening ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc's First Quarter 2026 Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers presentation, there will be a question and answer session. Please be informed that today's conference is being recorded.

I'll now turn the call over to the first speaker today, Miss Regina Wang, Investor Relations Associate Director of Tuya. Please go ahead.

Regina Wang

Thank you. Hello everyone and welcome to our first quarter 2026 earnings conference call. Joining us today are our founder and CEO, Mr. Jerry Wang and our Co-founder and CFO, Mr. Alex Yang. Our results and webcast of the conference call are available at ir.tuya.com. A replay of this call will also be available on our IR website in a few hours.

Before we continue, I'd like to refer you to our safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. With that, I will now turn the call over to our founder and CEO, Mr. Jerry Wang. Jerry will give his remarks in Chinese and English translation follows. Jerry, please.

Jerry Wang

Hello, everyone, and thank you for joining Tuya's earnings conference call for the first quarter of 2026. This quarter, despite ongoing uncertainties in the external environment and regional disruptions, the company continued to demonstrate robust growth momentum and strong execution capabilities. Benefiting from a continued recovery in downstream demand, our business scale has been expanding modestly since the fourth quarter.

Total revenue increased by 8.3% year over year with growth momentum improving quarter on quarter and posting positive growth for multiple consecutive quarters. Gross margin remained at a healthy level, reflecting the continued enhancement of our product value proposition and platform competitiveness.

In terms of execution of our key strategies, we continue to advance our AI driven development strategy. As we have mentioned earlier, AI is shifting from simple feature stacking towards deep integration with hardware devices and vertical industry scenarios. It's gradually evolving from a mere conversational tool into an intelligent agent that interacts and operates in the real world. This trend has been further validated by a richer portfolio of application offerings and customer scenarios in Q1 2026.

At the same time, we are accelerating the transition of AI capabilities from the platform layer to application layer and scenario based products with successful deployment across multiple real world use cases. We keep upgrading our developer tools and platform capabilities, empowering global developers to access and apply cutting edge AI technologies at lower cost and higher efficiency. The sustained growth in AI related revenue also reflects steady progress across our commercialization efforts.

During the quarter, we introduced a range of applications aligned with these directions, including the AI powered Smart Life Assistant, Tuya AI and AI Security Guardian. The significance of these initiatives lies not only in single products, but in validating the capabilities of AI agents to move beyond handling digital tasks into physical world execution and device coordination. We are seeing AI gradually develop the ability to operate across both digital and physical worlds, marking a critical step forward in the real world deployment of physical AI.

We will further deepen our strategic focus on the following key areas. First, we will continue to advance AI native application innovation centering on high engagement categories such as smart toys and companion robots. We will accelerate the penetration and large scale adoption of AI capabilities in consumer scenarios, extending physical AI into a wider range of everyday use cases.

Second, we will scale the global rollout of proven AI solutions, particularly in the energy and green technology sectors. By bringing mature solutions to international markets, we aim to enhance our industry recognition globally. Third, we will continue to strengthen our developer ecosystems through open platforms and enhanced tool capabilities. We will lower the barriers to AI application development and work closely with industry partners to drive deeper exploration and commercialization of AI technologies.

Now let me turn the call over to our Co-Founder and CFO, Alex Yang for a closer look at our financial performance and business progress.

Alex Yang

Hello everyone, this is Alex. I will provide a brief overview of our first quarter results. Please note that unless otherwise stated, all figures are in U.S. dollars and all comparisons are on year over year basis. In the first quarter of 2026, we generated total revenue of approximately US $80.9 million representing a year over year increase of around 8.3%.

Despite ongoing uncertainties in the external environment, the company maintained its steady growth. Structurally, our core platform business remained stable while AI related business continued to demonstrate strong growth. On profitability, our operating margin continued to improve. GAAP operating margin reached 9.2%, representing a significant year over year increase, while non-GAAP operating margin was 10%.

Net margins further improved to 19.5%, reflecting continued optimization in operating efficiency and cost structure. Overall, the combination of improvements in revenue mix and disciplined expense management has driven sustained profitability gains.

Before going to segment details, we would like to note that we have adjusted the names of certain business segments this quarter. The former SaaS and other segments has been renamed to AI application and others, reflecting our continued push toward AI enabled software services and more accurately capturing the transition from traditional cloud services to AI application services.

Meanwhile, the former smart solution segments has been renamed to smart home and robot products, highlighting our increased focus on AI powered home products, household robotics and scenario driven AI native devices on the hardware side. We would like to emphasize that these changes are purely presentational and did not affect the revenue composition, recognition methods or historical comparability of each segment.

Within our segments, the PaaS business generated revenue of $59 million U.S. dollars in this quarter, representing a year over year increase of approximately 9.8%. As customer demand gradually recovered, we continue to drive steady growth in our core business through ongoing optimization of our customer mix and platform capabilities.

At the end of the first quarter, the number of PaaS premium customers reached 306, reflecting the stability of our core customer base and the structural resilience of the platform business.

The AI application and other segments generated revenue of $11.6 million U.S. dollars in this quarter, representing a year over year increase of approximately 16.9%, continuing to outpace overall company growth. This growth was primarily driven by increased revenue from cloud software services and AI application services, including AI cloud storage, energy management services, varied services like SMS and voice services as well as app, OEM and SDK offerings.

This reflects the continuous progress in commercialization of our AI applications. As more software products completed their AI driven upgrades, this segment is gradually becoming a more growth oriented and software services centric component of our revenue mix.

The smart home and robot products segment generated revenue of $10.2 million U.S. dollars representing a year over year decrease of approximately 6.9%. The fluctuation in this segment primarily reflects our proactive effort to phase out relatively low value hardware products and optimize the product mix and reallocate resources towards higher value added, especially AI native hardware terminals.

As the segment undergoes structural adjustments, we expect long term profitability and scalability to gradually improve with a higher mix of higher value products.

From an operational perspective, several verticals this quarter have demonstrated structural opportunities driven by the integration of AI and smart hardware. In the security segment, our smart door lock business achieved 73% year over year growth driven by upgrades in multi-modal Wi-Fi solutions, video intercoms as well as AI voice and vision capabilities.

PaaS revenue from Wi-Fi enabled smart door locks increased 75% year over year. At the same time, the AI revenue from video enabled locks increased substantially 500% year over year. This demonstrates that AI and multi-modal capabilities are driving the traditional smart lock vertical to evolve from a standalone hardware model into a higher value model of hardware plus software service plus AI capability combined.

In the energy sector, related PaaS products including EV chargers, metering products and professional metering solutions are emerging as new growth drivers. We are also continuing to advance higher value solutions such as AI enabled display gateway and voice capabilities, providing a strong foundation for our customers' product operations and future growth.

In the European market for home energy management, energy storage and AI driven energy saving solutions continue to grow. During this quarter, we made solid progress in advancing AI energy related initiatives with key milestones achieved in the commercialization of energy storage and ecosystem accessories.

Our customers received very positive feedback and secured multiple channel partnerships and orders at exhibitions such as Light + Building in Frankfurt and Solar Solutions in the Netherlands. In Singapore's HDB project, new capabilities and panels are delivering progression on schedule.

AI energy is gradually evolving towards a comprehensive solutions model, integrating hardware bundles, software and AI orchestration, plus channel operations.

From a regional and scenario perspective, Europe remains a key deployment market for energy and green technology solutions with growing demand for AI energy smart electrical systems, spatial intelligence applications, AI smart home appliances, and AI safety and security products.

In Asia Pacific, the Singapore HDB projects continue moving through implementation and validation, while Southeast Asia and other emerging markets are beginning to generate opportunities in energy management, spatial intelligence and SME scenarios as well.

In China, AI enabled smart door locks, AI toys and AI home products, including AI companions continue to attract strong customer interest with some customers already advancing project upgrades and solution integration.

On margins, our blended gross margin for the quarter was 46.9% with slight year over year fluctuation primarily due to changes in the product mix and certain upstream cost variations. By segment, gross margin for PaaS was 46.1%. Gross margin for AI application and others was 71.7%, remaining stable and reflecting the structural advantage of software and AI driven business.

The gross margin for smart home and robot products was 23%, maintaining a level above 20%. While advancing AI applications and high value products, we continue to focus on cost efficiency and product value.

On expenses, we maintained disciplined cost management during the quarter with total operating expenses OpEx of approximately $30.4 million U.S. dollars while continuing to invest in core AI development and platform capability improvements. Driven by AI and digitalization operations, we enabled further operating leverage.

In terms of profitability, we recorded profit from operations of about $7.5 million U.S. dollars for this quarter. Non-GAAP profit from operations was approximately $8.1 million U.S. dollars. Net profit reached $15.8 million. The improvement was primarily driven by positive contribution from gross profit growth as well as lower share based compensation expenses.

On cash flow, net operating cash flow remained positive during this quarter. At the end of the quarter, the company's total cash, cash equivalents, time deposits and treasury securities amounted to approximately $1 billion plus. This strong cash position provides solid support for our continued investment in long term AI capability development, our ability to navigate external uncertainties and opportunities and our capacity to enhance shareholder returns.

We will also presently evaluate and pursue higher quality strategic investment opportunities. Overall, the company continues to deliver revenue growth and improved profitability in a complex environment, while the accelerated development of AI application business is driving the ongoing evolution of our revenue mix towards higher value segments.

Next, I will briefly walk you through our progress in the AI development ecosystem. Within our development ecosystem during the first quarter, we continued to advance the open source capabilities of Tuya Open and further development of our AI agents. To better address the diverse needs of AI native developers, we also launched new offerings including the ultra lightweight agent kit for hardware developers and the Vibe coding powered by Tuya hardware applications.

The Vibe coding will be able to help lower the bar for many new developers as well. These tools enable developers to build a wide range of AI native hardware products in a more flexible and agile manner. We remain committed to lowering the bar for AI hardware and application development while enhancing flexibility and openness, allowing developers, brands, solution providers to accelerate the process from ideation and prototyping to product commercialization.

At the end of the first quarter of 2026, the number of registered AI developers on our platform exceeded 1.96 million, maintaining steady growth. At the same time, engagement within the Tuya Open community continues to increase. Based on our current acquisition data, the Tuya Open documentation platform has accumulated over 340,000 views with more than 16,000 community members.

It has accumulated abundant open source projects, resources and launched a standardized demo cases library covering mainstream applications and development needs. Tuya Open is gradually evolving from an open source framework into an open ecosystem infrastructure for AI hardware innovation.

From our deployment perspective, AI applicabilities are increasingly extending from the platform layer into a broader range of end device formats. Whether in AI enabled door locks, energy management solutions, sensors, AI companion toys or AI robots, they all reflect the same underlying trend. AI is evolving from isolated functions towards deep integration with devices, scenarios and user needs.

This is fully aligned with our previously articulated vision of physical AI, enabling AI to engage in real world environments and actively participate in sensing, decision making and execution in real life.

In summary, our first quarter performance further validates the commercial viability of our AI strategy. Our core PaaS business continues to provide a solid growth foundation, while the deep integration of AI application services with physical hardware is emerging as a new driver for validation. At the same time, we have achieved meaningful progress in deploying AI solutions across high value scenarios such as energy, entertainment and security.

Looking ahead, we will remain focused on two key priorities: physical AI scenarios and higher value added AI products while maintaining financial discipline. We will accelerate the transition of AI technology from platform level capability to products with tangible commercial value, creating sustainable long term returns for our shareholders.

Thank you all. Operator, we can begin the Q&A session.

Operator

Thank you. We will now begin the question and answer session. To ask questions on the phone, please press *1 and 1 and wait for a name to be announced. To cancel your request, please press *1 and 1 again. One moment for the first question. As a reminder to ask question, please press *1 and 1 on your telephone. First question, we have Yan Liu from Morgan Stanley. Please go ahead.

Yan Liu

Thank you for the opportunity to ask questions and congratulations on the solid results. I would like to ask about the value chain because a lot of the sectors are suffering from chip shortage globally. So could management update us in terms of Tuya's situation in the value chain, especially the chip sourcing and also update us on the pricing strategy if there's any shortage or constraint from the value chain, how to pass through the inflationary cost to the downstream? Thank you.

Alex Yang

Yeah, thank you, Yan. Yes, we already noticed those kind of fluctuations around one and a half quarters ago. So that's why we gave a heads up of that type of trend around the end of last year. The things we're doing is first, considering we are large buyers of some of the major chips in the industry, the fluctuations we maintain as limited as we could because of the buying power.

At the same time, for those costs that inevitably we have to increase, we'll pass those costs to the downstream side. So that would be the basic idea of how we've been doing. You can notice that there are several reactions where we've been doing. The first one is that in Q1 we really did some strategic purchasing before any cost change.

So you can notice that in our balance sheet that our inventory increased slightly. So that majorly is the requirement we do before the cost increased. So that reflected in my inventory level and including my net cash as well. So that's the first one. We tried to use larger inventories to buy more time to work through the fluctuations.

The second one is that you already notice that especially on the PaaS side, the change or those kind of differences of the gross margin of PaaS reflects that we're really starting to pass through the cost, but we didn't add margin on the cost change because we don't want to bring more burden for my downstream side. So that reduced slightly on my gross margin on the PaaS as well.

We'll continue to keep focus on that and to work along with my customers through those fluctuations. No matter using our scale abilities to manage the cost difference at the least level as we could, at the same time we're using our inventories to try to bring more balance coming through with time. So that will be the basic idea there.

But what we found is that the shortage and the intensity of the momentum continue to increase in Q2 and the beginning of Q2. Thank you.

Operator

Thank you for the question. Our next question will come from the line of Goldman Sachs with Timothy Zhou. Please go ahead.

Timothy Zhou

Thank you management for taking my question and congrats on the solid results. I think my question is on the revenue front. I noticed that this quarter you achieved a pretty solid sequential acceleration on the revenue growth. However, given the very dynamic geopolitical and macro environment globally right now, I'm just wondering what is your latest thoughts on the demand outlook and revenue growth outlook for the rest of this year and what measures have you taken to stabilize or boost the demand?

And my second question is I noticed as you mentioned you changed the reporting name of two of the segments that you report. Could you further elaborate on the rationale behind and specifically AI applications and robotic products? Just wondering if you can share more color on your plan regarding these two specific segments. Thank you.

Alex Yang

OK, yeah, thank you for that. So the first one on the market environment, we already noticed that. As we shared the colors when we released our Q4 results, we found that while the international trading environment became stable after November of last year, the momentum started to recover and customers tried to return to a growing plan on the business side. So it's not that conservative.

Starting from December we see that started to recover, it's not overnight. So they're doing that gradually. And even though in March we know that there will be new fluctuation coming, but overall speaking the downstream side is recovering, but we have to break down into different sectors.

What we see here is that like the appliances, like the energy, like the innovative devices including the securities or the locks, we found that the growth momentum are more positive and are more for sure. Because the matter is that we found more solid demand pinpoint on the user side and those sectors, those companies are doing better.

But in some other sectors like the lightings, we don't see significant recovery. So it's kind of still doing in what we call an evaluating stage. So on the lighting side and some sectors, those chipset cost variations not from our side but from their own side like the cameras, or like some control panels with the screen.

The memory chip cost variations will bring more significant cost difference for the finished product for the device side and the factories and the brands, they can do less to change that direction. So that price increase might be significant for them like the camera business, the entry level cameras usually the FOB price or the retail price will be like twenty U.S. dollars and FOB will be below 10.

But during those kind of memory chip and other chip increase, we noticed that the FOB price might be able to hit above $15. So which means that the retail price have to increase around to 30 to 35. So that's significant increase on the retail price that might influence the consumers buying decision.

So we just noticed some sectors might be more sensitive and will be impacted more on the cost increase, some will be more resilient. So that will be on the product sector side and on the region side. Combined with that is that still for the energy, the Europe and the Southeast Asia strong demand including Australia is very strong demand for the energy management solution, especially in this year.

While people trying to notice that energy become more and more crucial and on the cost, the save ability side, so they have more willing to pre invest on any energy efficiency. So for that part, but for some other regions like the Latin America, they're more price sensitive. So like I mentioned that some sectors like the cameras for this market considered that they have lower buying power based on the macro economy in that region.

So for them, some sectors will meet some challenge out there. So for us, is that still we're trying to use our very comprehensive hardware category mix and combined with multi region mix to go against different type of fluctuations, we're always looking for opportunity in some regions to balance the others on the other side. So that's overall for the macro environment.

And the second one is for the AI transition. The model is the AI application and the home and robot products. Both sides that we're looking forward to give the market the signal is that we're doing so hard to reallocate our resources since 2023 to transit our previous, we'll call the first version of smart devices offering into the AI native offering.

Starting from the end of 2023 we really upgrade our entire platform architecture into large language model, which means that since end of 2023 all those decision making on the platform side for the device and the software applications can be based on the different natural language model or the mainstream one.

And in 2024, May of 2024, we already launched our hardware agent platform that enable our customer to design an agent on top of the devices. So make the devices be more smart and run doing something autonomously, but even no customers understand what it is. What is the agent?

And in last year, we launched our new AI platform as a new AI foundation that including the multi-modal offerings, including the open source projects to open some new doors for the new innovation, innovative ideas for those customers and then give them a bridge, giving a path. That's how they can combine technology into innovative ideas and make it come true.

And in April that in our new developer summit, we launch our new offerings including the agent kit that allow the hardware designers to do things more freely and including our Vibe coding tools that right now they can design any software including the apps, including the firmware on the hardware side, including the cloud services. They can do that all through Vibe coding.

So all the things we're doing is that we to show that we are kind of an AI native user and AI enabler. And so for that things we're trying to upgrade our offering in those two segments. So take the AI application for examples. We're really trying to provide that for all the cloud storage on the camera side that right now contain with AI capability.

So customer will be able to customize the event. So it's not just dummy detects any movement on the picture and give you the unknown and you can find that you've got so many false alarms and then you have to turn down the notification, right, because the camera cannot tell whether it's something you should pay attention to or not.

Any like the delivery boys come by that anyone come from your the door that you get notification and start from there that you can build an event that so if it's a package. So don't give me notification and if someone staying at the front door like over 10 minutes a day and notice if someone showed up every day and seems like very suspicious, give me a notice.

So people starting to be able to create their own event and then have the camera to watch out for them so that things will be provide significant more values and killing more pain point for the end user site. So that kind of the seamless upgrade on those kind of offerings is a natural upgrade for our previous SaaS offering.

So we think that right now we're trying to provide more and more AI capabilities seamlessly to the previous SaaS and then we'll show that more users trying to subscribe that services because of the AI offering. And then we're doing the update AI applications and that's the American scale. It's agent or it's purely services on the recurring model.

And for the home products and robotics. Some scenarios is including like the companion that's when we're offering AI toy for some customers that some customers and they have their own brands, they have their own very good toy design and capabilities and the channel distributions, but they don't have the capability to design things from scratch, especially they don't know anything about coding.

They don't know anything about the circuit boards, about the microphone array design. So for some of that part we start to offer the entire solution. And so through that we'll put more focus not on some what they call is the first generation of smart devices which trying to focus more on the AI, what we call AI native devices.

So like the toy, they need the multi-modal capability, they need the very huge noise cancelling and the microphone array design and they need the string projection and technologies to reflect the different type of reactions from the choice side. So for that part and that's how we allocated the resources since last year.

And so right now for this segment that the directions is that we guide the entire department to put focus on all those kind of AI enabled and AI native devices. And usually those devices will come naturally with not only the AI feature, but combine with larger opportunity for the AI application business. So that's how we're driving force to that.

So kind of connected devices segment anymore, it's become a more AI native offering for those customers by helping through that. So that will be the typical use cases. Thank you.

Timothy Zhou

Thank you for the very detailed information. Thank you.

Operator

Now next question will come from the line of Kai Xiao of CICC. Please go ahead.

Kai Xiao

Thank you management, this is Kai and I have two questions. First one, competition. So following the emergence of agents on device, agent deployment has become an industry trend. So could you share how has the competitive landscape evolved in Q1 and how do you view Tuya's advantage in the field? And my second question is R&D. So could you share how did the company apply AI tools like agent coding tools in internal R&D and what's the potential impact on margin and profitability? Thank you.

Alex Yang

Yeah. So the first one already covers some of the trends in the market environment side. As we see here is that two things. The first one since the customer is trying to kind of escape from over conservative momentum in our shares this time to get back into the growth path. So what we're doing is that we just identify the right road map along with them and fulfill that and help them to providing better products, better offering on their shelf on their own channels and to catch their own end users, what I mean?

And in the same time, we really see that the end user stickiness on AI are growing very healthily. So which means that one of my users are trying at whatever AI features and AI offense. And I believe that it's not that significant right now, but in the near future and the consumers when they're sourcing that smart devices, AI features or what type of AI features will be kind of the key differentiations or key factors for them to make the decision.

And so we are very happy to see that since the second half of last year that our penetration among my ecosystem to integrate AI capabilities we offer to their new products design and become significant and improved. So that will help us to capture the trend. So that's for this part.

So what do we see that will always be kind of the early adapter and to notice the trend for the industry maybe two or three quarters ahead. Is that because I can see that how what type of technology my customer is trying to pre study trying to try and when they start to implement that into the new product road map and produce that.

So what we see is that enough to consider as an early education for the entire industry or in most of the sectors we cover that to give them type of the right educational coach that AI will be considered as the next generation of key differentiations for any new things they built and to the market.

And so they need to try that or need to try to understand and to learn that starting from the second half of last year that the customers majority of the new products or the new projects that they kicked off, if they try that. And so then the new products they start to offer maybe at the end of the last year or at the second of the issue, bring that into market, going through a long procedure into the development, manufacturing, logistics and to the end of design. So that will be see here. And so it will be a very positive trend.

And on the second part is for the AI usage, I'd like to share some things. And first one is that at the end of last year, the front end, which means that those ones designed the UI user interface and the UX user experience are using most of our overall. And so at the end of last year, around 40% of the codes we designed for UI side are doing through AI. So that's the first one and we're improving that as well considering that in this year, in this Q1 that the AI coding capability improved a lot.

So we found that we can use more AI to do more terminals including the agent kit I mentioned for the hardware designers, the agent kit a significant part of that is doing by AI and while we often that kit, we also combine with the Vibe coding tool for that kit as well. And so which means that not us design the kit for AI, the customer will be do that through the that coding more freely as well and very quickly to turn that into a hardware prototype.

And also in the same time, the AI usage is not only used for the R&D. So all our departments including the financial, including the human resources, including the legal department would be using heavily store AI. So no matter it's improving our efficiencies on some office processing, office work processing and also including the data analytics, the BI and decision makings, etc.

So we consider that the AI to improve the efficiency in two parts. The first one is that to release some of my neighbors to focus more on higher value works. That's the first one. The second one is that for the even on the coding side, on the development side, that is to enlarge our capacity that to meet the future demand growth because we've already noticed that while more and more AI native developer coming in, that trend is very good.

One is that in this year, we noticed more and more new developers do not come from the hardware industry. So which means that people sign to identify that the AI capability might be a new opportunity for new team to engage in the new smart devices business sectors that only come in the new idea and something that didn't happen in the hardware world before.

So special one is like the toy companion ones that many of my very fast growing customers in the toy sectors, they are not toy players out there. And we will see including some of the what do you call the youth market like the batch is a animation batch is the focus on the cartoon. And those batch players, they don't have that business before.

So that kind of industry breakthrough or crossover players and they require more on the they rely more on the AI capabilities usage themselves and also they are more come with the AI native ideas or native ideas. So not only to reduce the cost, but also use the same level of cost to improve the capacities to capture those demands. And that's where we'll have more priority to check out too.

So like I mentioned that so the net cash flow considered as a strategic strength for the company not only for the future competition but also for the future opportunity. I think that's even more important is that while the industry are growing faster and some breakthrough happen in especially like the crossover happened, that will not hesitate to increase the investment to capture those demands.

So I think that will be the overall momentum. And so how we use the AI and we empower customers with AI, what we see that we need to be the very powerful AI user and until then we will be able to empower customers. Thank you.

Operator

Thank you for the questions. Our last question will now come from the line of Matt Ma of Jefferies. Please go ahead.

Matt Ma

Hey, good morning, management. Thank you for taking my question. I have two questions. So the number one is on the smart home and robot product segment. I would like to know how do we think about the growth trajectory of this segment in 2026? Should we expect a growth recovery in the coming quarters? And my second question is on the AI application segment. We are seeing that the gross margin of this segment has declined by 2.7 percentage point year on year in the first quarter. Are there any specific reasons behind that? That's all. Thank you.

Alex Yang

Yeah, so the first one is for the home and the robot products that we're looking for to have the recovery in the coming quarter or in the coming two quarters. And because it's a structural change, so we have to make the hard decisions. You know, you can see that even to maintain the revenue and the gross profit growth. But in the same time we cut off some of the products even we got the orders we decided we're not to do. We're not to do that anymore because we don't like the model out there for the long term.

So there's a structural hard decisions even we'll miss some not that good numbers but we're looking to speed up to catch it up. So we have the new offering starting to taking places in Q2 and working for to capture on orders and to deliver that to make it up. So either it's end of the Q2 or it's Q3 we're looking for to get that recovery. So that's the first one for the home and the robot production.

And for the applications. Yes, we found that we found the seasonal difference. It's very interesting that we find that the key part is that the AI applications is to rely on the usage of the end users. On the devices that are running and the typical thing that we found that maybe is that in the Q1, the usage is always kind of the lower seasons for the entire year.

So that's why the usage is kind of low. So the service basis revenue is becoming lower for that. Maybe one of the reason is that the Q1 many of the users kind of the new users will have the new devices for the Christmas for the holiday season promotions. And while they start to try the products usually the combined with the some of the vacations, the uses trying to dropped.

We were looking forward to see that the natural recovery on the usage sides were starting to taking places on Q2. So that will be the stuff. So it's kind of very interesting one. Got it. Thank you.

Operator

Thank you for the questions. I'll now hand the call back to management team for closing remarks. Yeah, no more questions from the line. Allow me to sign the callback. Thank you.

Regina Wang

OK, thank you, operator, and thank you all once again for joining us today. If you have any further questions, please feel free to contact Tuya IR team. Goodbye and see you next quarter.

Operator

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Details at Tuya Inc IR

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