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On Monday, JPMorgan made a change to its position in Kingsoft Cloud (NASDAQ:KC), upgrading the stock from Neutral to Overweight, while simultaneously reducing its price target to $4.20 from $4.50 previously.
The company’s analyst cited a forecast that Kingsoft Cloud’s margin expansion will exceed market expectations, attributing this to a combination of a favorable shift in revenue mix and a decrease in amortization expenses.
The analyst highlighted two main factors behind the expected margin expansion: a shift in the revenue mix towards higher margin businesses, including rapidly growing AI revenues, and a decline in Content Delivery revenues Lower margin network.
Additionally, a reduction in depreciation expenses following major asset write-downs in the third quarter of the prior year is expected to contribute to margin improvement.
JPMorgan expects Kingsoft Cloud to break even on EBITDA in the first quarter of 2024 and reach full-year EBITDA breakeven for the first time in the same year. This outlook is more optimistic than consensus expectations, which predict an EBITDA loss for the company.
Despite the stock’s 30% decline year-to-date, which contrasts with KWEB’s 7% decline, JPMorgan believes the decline is primarily due to weak market sentiment toward loss-making small-cap stocks, rather than development fundamental of society. .
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