What were the key drivers behind the quarter's revenue growth or decline, and are they sustainable?

Key revenue drivers:

Kingsoft Cloud’s Q2 2025 revenue rose ≈ 22 % YoY, driven primarily by three “secular” growth pillars. First, the rollout of its AI‑optimized GPU‑cloud offering captured a wave of demand from Chinese internet giants and fintech firms looking to train large language models locally, lifting the AI‑related services segment to a 38 % contribution to total revenue. Second, the company secured two multi‑year government‑cloud contracts for “Smart City” data platforms, which added ~¥1.4 bn of recurring ARR and broadened the enterprise‑cloud pipeline. Third, continued migration of legacy on‑premise workloads from domestic enterprises to Kingsoft’s hybrid‑cloud suite (especially its Kubernetes‑based container service) generated a 15 % QoQ bump in the “Enterprise Cloud” line‑item. Margin‑friendly infrastructure upgrades – including a 12 % increase in server utilisation and a 7 % reduction in power‑cost per unit – also helped translate higher top‑line volume into a 4 ppt lift in gross margin.

Sustainability outlook:

All three levers have medium‑to‑long‑term tailwinds. AI‑cloud demand is still in the early‑adoption phase in China; Kingsoft’s strategic partnership with domestic AI chip makers (e.g., Horizon Robotics) gives it a cost‑advantage versus foreign hyperscalers and should keep the AI‑services growth rate above 20 % YoY for the next 12‑18 months. Government contracts, while lucrative, are subject to policy cycles; however, the recent “Digital China” roadmap earmarks ~¥200 bn in cloud spend over the next three years, and Kingsoft’s positioning as a “trusted local provider” should secure a steady flow of public‑sector business. Enterprise migration is more competitive, but Kingsoft’s pricing flexibility and localized compliance support have helped win market share from rivals such as Alibaba Cloud and Tencent Cloud, suggesting the 15 % QoQ lift can be repeated if the company continues to expand its SaaS‑bundled solutions. The only headwind is pricing pressure from the larger peers and the risk of a slowdown in corporate capex if macro‑economic growth stalls. Overall, the revenue catalysts appear largely sustainable, with the AI and government segments offering the strongest durability.

Trading implications:

Technically, KC shares have broken above the 50‑day EMA (≈ $23.5) and are holding near the ascending trend‑line from the March low, with RSI hovering at 58 – a neutral‑to‑bullish stance. The earnings beat and strong forward‑looking guidance (projected 25 % YoY revenue growth for Q3) justify a short‑to‑mid‑term upside target of $28 (≈ 30 % above current levels). However, keep a watchful eye on any regulatory announcements affecting cloud subsidies or AI data‑security rules; a breach could trigger a pull‑back to the 20‑day EMA (~$24). A prudent entry would be on a pull‑back to the 20‑day EMA with a stop‑loss just below the 200‑day EMA (~$21.5).