Executive Summary / Key Takeaways

• Xiao-I Corporation, a seasoned leader in cognitive AI, is strategically expanding beyond its robust B2B foundation into the burgeoning B2C market, leveraging its proprietary Hua Zang Universal Large Language Model (LLM) and ecosystem.
• The company demonstrated strong financial performance in 2024, achieving $70.31 million in revenue, an 18.8% year-over-year increase, alongside a significant narrowing of its net loss to $14.55 million.
• AIXI is differentiating itself in the competitive AI landscape by focusing on customizable, cost-effective, and commercially viable LLM solutions for enterprises and consumers, rather than solely pursuing the "bigger is better" scaling law.
• Significant R&D investments, projected at around 50% of revenue, are fueling new product launches in May 2025, including OOTDiffusion for virtual trials and Diff. Daily Investor Focus for retail investors, alongside an ESG hardware product.
• With anticipated continued B2B growth, new B2C revenue streams, and optimized operational efficiency, Xiao-I is positioned to achieve profitability in 2025, with operating cash flow expected to turn positive.

The AI Frontier: Xiao-I's Strategic Evolution

Founded in Shanghai in 2001, Xiao-I Corporation has cultivated a two-decade legacy as a pioneer in artificial intelligence solutions, primarily serving the business-to-business (B2B) sector in China. The company's vision centers on enhancing lives through AI technologies, a mission it pursues through a comprehensive suite of platforms including conversational AI, knowledge fusion, intelligent voice, hyperautomation, data intelligence, and cloud services. This extensive offering caters to a diverse client base spanning large contact centers, financial institutions, communication operators, government services, industrial manufacturing, and healthcare. Xiao-I's enduring relationships, such as a decade-long partnership with a premier automotive manufacturer and an eight-year collaboration with a leading kitchen appliance maker, underscore its deep integration and proven value within its B2B client ecosystem.

The year 2023 marked a pivotal moment for the global AI sector, characterized by tremendous growth potential, and Xiao-I seized this opportunity to accelerate its strategic evolution. The company recognized AI's potential as a "game changer" capable of revolutionizing nearly every business sphere. In response, Xiao-I launched its Hua Zang Universal Large Language Model (LLM) in July 2023, followed by the Hua Zang ecosystem in October 2023. This ecosystem, built upon the LLM, rapidly expanded to collaborate with thousands of partners across more than 50 industry fields, validating its commercialization path.

Technological Edge: Customizable AI for Commercial Impact

Xiao-I's core technological differentiator lies in its Hua Zang Universal Large Language Model, designed to be controllable, customizable, and deliverable. This approach contrasts with a prevalent industry mindset that prioritizes sheer scale and computational power, adhering to a "bigger is better" scaling law for achieving Artificial General Intelligence (AGI). While acknowledging the computational demands of such an approach, Xiao-I's management emphasizes a pragmatic strategy: delivering cost-effective and commercially viable LLM solutions tailored to specific business needs.

The Hua Zang ecosystem, built on this LLM, streamlines processes and empowers customers to create unique, branded conversational AI experiences. This focus on practical application and customization is particularly relevant for enterprise-level large language models, where current LLM capabilities are often "sufficient to significantly enhance the corporate operation efficiency". The company's Model as a Service (MaaS) business, which leverages these cloud-delivered AI models, effectively reduces barriers to AI adoption, enabling a broader range of businesses and developers to access and utilize AI technology conveniently.

Xiao-I's commitment to innovation is further evidenced by its robust research and development efforts. As of March 31, 2024, the R&D team comprised 158 individuals, representing 56.2% of its total workforce, with a strong academic foundation including Bachelor's, Master's, and Doctorate degree holders. The company holds a substantial intellectual property portfolio, with 318 patent grants and 137 software copyrights as of December 31, 2023, including 36 new patent applications filed in 2023, six of which are specifically related to large models. Strategic collaborations with leading academic institutions, such as the Chinese Academy of Science and top universities like Tsinghua and Peking University, further bolster its R&D capabilities.

Emerging technologies like OOTDiffusion, a new network architecture for realistic and controllable virtual trials, highlight Xiao-I's forward-looking product development. OOTDiffusion has garnered significant attention on platforms like GitHub and X, signaling promising prospects for commercialization. This technological focus translates directly into competitive advantages, allowing AIXI to offer specialized, efficient, and integrated AI solutions that drive customer loyalty and potentially command superior margins in targeted markets.

Competitive Landscape and Strategic Positioning

In the dynamic AI market, Xiao-I operates alongside formidable competitors such as Baidu (BIDU), Alibaba (BABA), and Tencent (TCEHY), all of whom possess extensive resources and broad AI ecosystems. While these tech giants offer wide-ranging AI services, AIXI carves out a specialized niche, particularly in smart city and industry-focused applications. AIXI's agility and concentrated focus on customizable, cost-effective LLM solutions provide a distinct competitive edge, allowing it to deliver more tailored and efficient deployments compared to the broader, more complex offerings of its larger rivals.

Xiao-I's long-standing strategic partnerships, including recent renewals with a leading global bank and AIA China, demonstrate its ability to foster deep customer relationships and provide specialized AI-driven customer service solutions powered by its Hua Zang LLM. These enduring collaborations underscore AIXI's strength in targeted operational execution and niche innovation, enabling it to maintain strong customer loyalty and potentially achieve higher efficiency in specific AI applications. For instance, while Tencent boasts a vast user network, AIXI's intelligent voice and vision analysis platforms offer specialized tools for smart city infrastructure, potentially leading to greater efficiency in such projects. Similarly, against Alibaba's scalable cloud infrastructure, AIXI's focused platforms for hyperautomation and data intelligence can offer more seamless integration for government and finance clients.

However, AIXI's smaller scale compared to its larger competitors can lead to higher operational costs and potentially slower innovation cycles in broad AI research. The company's financial performance, while showing strong gross margins (67.62% TTM), reflects significant investment in R&D, resulting in operating and net losses (Operating Profit Margin TTM: -23.36%, Net Profit Margin TTM: -25.63%). This contrasts with the established profitability of companies like Tencent, which reported a 32% operating profit margin and 29% net profit margin in 2024. This highlights AIXI's current growth phase, where substantial investments are being made to capture future market share and solidify its technological lead in specialized areas.

Financial Performance and Outlook

Xiao-I Corporation demonstrated robust financial growth in 2023, with total revenue reaching an impressive $59.2 million, marking a 22.8% year-on-year increase. This growth was primarily fueled by its strategic focus on AI model services, with the MaaS business growing by 48.5% to $19.2 million, accounting for over 30% of total revenue for the first time. The non-MaaS business also contributed with a healthy 13.4% growth, reaching $40 million. The company's gross profit expanded by 28% to $39.4 million, and its gross margin improved significantly to 66.6% from 63.9% in the prior year, largely due to the higher profit margins (74.8%) of its cloud platform products that underpin the MaaS business.

However, this period of intense innovation and expansion also saw a substantial increase in operating expenses, primarily driven by a 118.3% surge in R&D expenses to $52.4 million, reflecting significant investments in its advanced Large Language Models. Consequently, the company reported an operating loss of $21.9 million and a net loss of $27 million in 2023.

Looking ahead, Xiao-I's 2024 financial results indicate a strong trajectory towards profitability. The company reported approximately $70.31 million in revenue for 2024, representing an 18.8% year-over-year growth. This growth was accompanied by a 2 percentage point improvement in gross profit margin and a significant narrowing of the net loss to $14.55 million. Management anticipates continued robust growth in its B2B operations, projecting around 20% yearly growth.

The company is also strategically expanding into the B2C market, viewing the proliferation of LLMs as a "Blue Ocean" for consumer applications. Several new products are slated for launch in May 2025, including OOTDiffusion, a subscription-based virtual trial platform, and Diff. Daily Investor Focus, an AI-powered platform for retail investors. An ESG-focused hardware product is also expected to be introduced in May 2025. These initiatives are expected to generate incremental revenue and contribute to the company's "wolf pack strategy" of introducing multiple applications.

Xiao-I remains committed to substantial R&D investment, expecting it to be around 50% of total revenue, albeit a lower ratio than the previous year, with a primary focus on MaaS products and the Hua Zang LLM. With increased revenue scale and optimized operational efficiency (SG&A expense rate reduced to 15% in 2023), the company expects to significantly reduce losses in 2024 and is positioned to achieve profitability in 2025. Furthermore, operating cash flow is projected to become positive, signaling improved financial health and sustainability.

Recent corporate governance updates include the appointment of Jun Wang as an independent director on July 1, 2025. Mr. Wang brings over two decades of experience in integrating IoT, big data, and AI technologies, particularly in enhancing hotel operations and leading smart agriculture projects, aligning with AIXI's broader technological and application focus.

Risks and Challenges

Despite its promising outlook, Xiao-I faces several pertinent risks. The substantial investment in R&D, while crucial for technological leadership, has contributed to significant operating and net losses in recent years. Sustaining this investment while driving towards profitability requires careful cost management and successful commercialization of new products. The competitive landscape, dominated by tech giants with vast resources, poses a continuous challenge, requiring AIXI to consistently innovate and differentiate its offerings. The company's strategy of focusing on customizable, cost-effective LLMs, while a strength, could face pressure if the broader market shifts predominantly towards the "bigger is better" scaling law for AI models. Additionally, as a China-based company, it may be subject to evolving regulatory environments.

Conclusion

Xiao-I Corporation stands at a pivotal juncture, transforming from a well-established B2B AI solutions provider into a broader innovator poised to capture opportunities in the consumer market. Its proprietary Hua Zang Universal Large Language Model and the encompassing Hua Zang ecosystem are central to this evolution, driving robust growth in its MaaS business and underpinning its strategic expansion. By prioritizing customizable, cost-effective, and commercially viable AI solutions, Xiao-I is carving out a distinct competitive position in an industry often fixated on scale.

The company's strong 2024 financial performance, marked by significant revenue growth and a narrowed net loss, coupled with a clear roadmap for new product launches and international expansion, underscores its commitment to disciplined execution. With management's guidance pointing towards profitability in 2025 and positive operating cash flow, Xiao-I is demonstrating a compelling path to sustainable growth. Investors should closely monitor the successful commercialization of its new B2C offerings and its continued ability to leverage technological leadership to differentiate itself in the intensely competitive global AI landscape, as these factors will be critical in realizing its long-term value creation potential.