China’s GPU champion is beginning to absorb its heavy R&D costs as sales accelerate, but cash outflows and rising inventory remain significant challenges.
By Li Mengran
Moore Threads (688795.SH), one of China’s leading domestic GPU developers, has achieved its first quarterly adjusted profit as revenue continues to expand rapidly.
The company, positioning itself as a fast-rising domestic alternative to Nvidia, reported third-quarter revenue of 1.55 billion yuan ($233 million) on Oct. 28, up 1,774% year on year. Net profit attributable to shareholders was 49.3 million yuan, while adjusted net profit was 20.1 million yuan, marking its first quarterly profit excluding non-recurring items. Revenue for the first nine months reached 3.29 billion yuan, up 319%.
Among China’s five leading domestic GPU developers — Moore Threads, MetaX (688802.SH), Biren Technology (6082.HK), Enflame Technology (688801.SH), and Iluvatar CoreX (9903.HK) — Moore Threads ranked first in terms of first-half revenue. All five “little dragons” have entered the capital markets since late 2025, initially benefiting from investor enthusiasm before share prices retreated.
Moore Threads shares rose 5.84% to 381.50 yuan on the results, valuing the company at approximately 179.3 billion yuan, nearly 60% below its post-listing peak.
The Beijing-based company is not the first of the five to turn a profit. Iluvatar CoreX and MetaX both recorded accounting profits in the first half, although investment fair-value gains significantly boosted their results. MetaX also achieved quarterly adjusted profitability in the second quarter.
Moore Threads’ achievement is notable because revenue growth is beginning to absorb its substantial R&D costs. However, its third-quarter adjusted net margin was just 1.3%, and nearly 60% of reported net profit came from non-recurring items, including changes in the fair value of financial assets.
The company recorded an adjusted net loss of 131 million yuan for the first nine months, while operating cash outflow reached 3.31 billion yuan. Its transition to commercial-scale sales is progressing, but sustainable profitability remains unproven.
Revenue growth begins to cover R&D costs
Quarterly revenue rose from approximately 738 million yuan in the first quarter to 999 million yuan in the second and 1.55 billion yuan in the third. The headline year-on-year growth rate partly reflects a low comparison base: revenue in the third quarter of 2025 was just 82.8 million yuan.
The main driver is growing demand for AI computing products. Moore Threads said its MTT S5000 GPUs are gaining traction among cloud providers, AI companies, telecom operators and computing centers. It is also supplying complete computing clusters and system-level solutions for AI training and inference, moving beyond individual chip sales.
Its business remains heavily concentrated in cloud computing. First-half cloud product revenue reached 1.69 billion yuan, accounting for approximately 97.5% of total revenue. Desktop graphics cards, edge AI modules and AI PCs contributed only around 41 million yuan.
Customer concentration is another risk: the five largest customers accounted for 91.4% of sales in 2025, leaving quarterly performance potentially sensitive to major orders and delivery schedules.
More encouragingly, revenue growth is beginning to outpace R&D spending. Investment in R&D reached 1.34 billion yuan in the first nine months, up 55.7% year on year and already exceeding the full-year 2025 figure. Yet R&D expenditure fell from 109.7% of revenue in the same period last year to 40.8%.
This suggests that increasing sales are beginning to make the company’s substantial development costs more manageable.
Gross margins, however, have weakened. The nine-month gross margin was 53.7%, down from 61.9% a year earlier. After falling from 67.4% in the first quarter to 49.3% in the second, it stood at 50.1% in the third.
The decline partly reflects the growing contribution of integrated computing systems and clusters, which require purchases of servers, networking equipment and other hardware. Rising semiconductor material costs have also added pressure.
These larger system-level contracts can boost revenue, but their reliance on externally sourced equipment can dilute margins. The challenge is to maintain profitability through purchasing economies of scale and better supply-chain management.
Cash flow under pressure
Despite its quarterly profit, Moore Threads continues to consume substantial amounts of cash.
Operating activities generated a net cash outflow of 3.31 billion yuan in the first nine months, more than double the approximately 1.5 billion yuan recorded a year earlier.
Cash received from sales of goods and services totalled 3.14 billion yuan, broadly comparable with revenue of 3.29 billion yuan. But cash paid for purchases of goods and services reached 5.15 billion yuan, equivalent to 156.6% of revenue.
The company attributed the outflow to increased procurement as it expanded production and built strategic inventories to meet demand and strengthen supply-chain resilience.
The spending is also visible on its balance sheet. At the end of September, inventory stood at 3.36 billion yuan, up 152% from the end of 2025, while prepayments rose 46% to 2.6 billion yuan. Together, they tied up nearly 5.96 billion yuan.
Rising inventory does not necessarily indicate unsold products, and prepayments are not automatically at risk. Inventory had actually declined from its second-quarter level. However, the company has not disclosed the orders and delivery schedules associated with these assets, making it difficult to assess how quickly they will translate into sales.
If demand continues to grow, advance purchases should support deliveries and eventually ease cash-flow pressure. If orders slow or products become outdated, inventory turnover and potential impairment losses could become concerns.
There is also a wider profitability challenge. Total operating costs reached 3.37 billion yuan in the first nine months, still exceeding revenue. Despite its first quarterly adjusted profit, Moore Threads has yet to achieve cumulative profitability.
The next test is whether it can convert growing orders and inventory into deliveries and cash receipts, reduce operating cash outflows, and sustain quarterly adjusted profits.
Revenue growth demonstrates market demand, and the first adjusted quarterly profit marks an important milestone. But consistent earnings and positive cash flow remain the real tests of Moore Threads’ business model.
Source:
AIXcaijing
