Wall Street on Zhihu Financial Report: ARR explosion is the biggest surprise, token volume and price rising together means there is already substantive pricing power.
Zhipu AI has delivered a report card that has caught Wall Street’s attention, with annual revenue surging more than double year-on-year. But what truly shocked the market was a real-time data disclosed after the earnings release:
As of March 31, 2026, the company’s open platform API annual recurring revenue (ARR) has soared to approximately 1.7 billion RMB (about $250 million), more than 2.4 times the roughly 500 million RMB at the end of 2025, and about a 60-fold increase compared to twelve months prior. Both Morgan Stanley and JP Morgan consider this the biggest surprise of the latest earnings report. More convincingly, this explosive growth has not simply been achieved by “trading price for volume.”
According to Chasing Wind Trading Desk, JP Morgan specifically noted in their research that Zhipu API platform’s token price has risen 83% since the beginning of the year, while demand continues to accelerate—volume and price rising simultaneously. In the current domestic price war among large models, this phenomenon is extremely rare and directly confirms that Zhipu has established substantial pricing power in high-value scenarios such as programming and intelligent agents.
Looking at the profitability path, Zhipu’s loss structure is undergoing a qualitative change. In 2025, the company’s R&D expenditure was about 3.2 billion RMB, roughly equivalent to the scale of adjusted net losses, which means the gross profit generated by existing models has been sufficient to cover sales and administrative expenses—the core business has achieved a breakeven contribution, and all losses are essentially proactive investments in next-generation model iterations.
JP Morgan believes that with continued triple-digit revenue growth and expanding API gross margin (3% in 2024, rising to 19% in 2025), the profitability timeline is becoming increasingly clear, and the company is expected to become profitable in 2029.
ARR Boom: From “Year-End Target” to “On Track”
The core highlight of this earnings report is Zhipu’s disclosed ARR data. As of March 31, 2026, open platform API ARR has reached about $250 million, growing 6.4 times since the start of the year and about 60 times over twelve months.
The management’s year-end target is $1 billion, and current progress shows that this is not a distant vision but already well on a fast-track to realization.
Morgan Stanley’s research listed ARR’s outperformance as the core event that “strengthens investment logic,” calling it a “major surprise.”
From a business structure perspective, cloud deployment revenue in the second half of 2025 grew 431% year-on-year, far outpacing the 57% growth of on-premise deployments, with the cloud business's share of overall revenue rapidly rising from single digits to 26%. This structural shift means Zhipu’s business model is evolving from heavy-asset, low-repeat project delivery to a light-asset, highly sticky subscription-based API economy.
Token Price and Volume Both Rising: Pricing Power Is the Rarest Signal
Amid widespread “price competition” in the domestic large model sector, Zhipu’s ability to achieve an 83% rise in token price since the start of the year, with increasing demand, is worth deep analysis.
JP Morgan analyst Olivia Xu pointed out in her research that simultaneous growth in volume and price is the clearest signal of “real model competitiveness” and “high-value workload”-driven growth.
Specifically, for customers in programming (Coding) and intelligent agent (Agent) scenarios, the payment logic has evolved from “pay by usage” to “pay for task quality, throughput, and stability”—a fundamentally higher-dimensional business relationship. When customers are willing to pay a premium for better results, rather than simply seeking the lowest price, pricing power is quietly established.
Looking at model iterations, Zhipu’s rapid progress from GLM-4.5/4.6/4.7 to GLM-5, and its sustained investment in production-level programming, long-context reasoning, and multi-step execution stability, underpins this pricing power technically.
Gross Margin Turning Point: Cloud Business Leaps from Loss to Profit
In the second half of 2025, Zhipu’s cloud deployment business gross margin jumped dramatically from -0.4% in the first half to 22.4%, marking the cloud business’s formal breakeven and entry into a virtuous cycle driven by scale effect.
Across the group, open platform API gross margin rose from 3% in 2024 to 19% in 2025, a 16 percentage point increase.
JP Morgan expects that as scale expands and model inference efficiency improves, there remains substantial room for gross margin improvement. According to their forecasts, the group’s overall gross margin will stay around 31% in 2026, rise to 36% in 2027, and reach 37% in 2028.
Notably, in 2025, gross profit was about 297 million RMB, while sales and administrative expenses totaled about 896 million RMB and R&D spending was about 3.2 billion RMB. Excluding R&D, gross profit basically covers non-R&D operational costs, meaning Zhipu’s core business model now has self-sustaining ability. Current losses are entirely due to strategic R&D investment, not flaws in the business model itself.
On-Premise Deployment: Upgrading Existing Assets Potential
Besides explosive growth in cloud API business, Zhipu’s on-premise deployment foundation in regulated industries in China is also an important pillar of JP Morgan’s investment thesis. In the second half of 2025, on-premise deployment revenue reached 372 million RMB, up 57% year-on-year, and its absolute scale is still more than double that of the cloud business.
JP Morgan believes this large stock customer base has unique strategic value: as foundational models continue to iterate and upgrade, these deployed customers have natural upgrade demands, likely evolving into cyclical, predictable upgrade-driven revenue streams.
Regulated industries such as finance, government, and energy have high sensitivity to data security, making on-premise deployment an irreplaceable delivery mode in the foreseeable future, forming Zhipu’s structural moat compared to pure-cloud competitors.
JP Morgan Sharply Raises Target Price
JP Morgan maintains an "overweight" rating, raising the target price from HK$800 to HK$950, based on 30x 2030 expected P/E, discounted at 15% weighted average cost of capital to year-end 2026. The 30x valuation premium mainly reflects the company’s forecast of over 100% annual compound revenue growth from 2026 to 2030.
According to the latest forecast, Zhipu’s revenue will reach 3.192 billion RMB in 2026 (up 341% year-on-year), rising to 7.257 billion RMB in 2027, jumping to 19.725 billion RMB in 2028, and possibly breaking 98.8 billion RMB in 2030. Adjusted net profit is expected to turn positive in 2029 at 2.822 billion RMB and further rise to 20.36 billion RMB in 2030.
Morgan Stanley also maintains an “overweight” rating, target price HK$560, using DCF valuation method, assuming 15% WACC and 3% perpetual growth rate, corresponding to about 53x sales in 2027. The two institutions differ in methodology, but their assessment of Zhipu’s long-term value is highly consistent.
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