Jack Ma and Lei Jun bet big, losing 2 billion in 3 years: Why did a former NVIDIA engineer pursue the "AR first stock"?

Ask AI · With 2 billion yuan in losses over three years, what strategic considerations lie behind XREAL’s heavy R&D spending?

Image source: Visual China

By Yaxuan

Edited by Ye Jinyan

Produced by Deep Web · Tencent News Xiaoman Studio

Recently, XREAL Ltd. (hereinafter referred to as XREAL) officially submitted its prospectus to the Hong Kong Stock Exchange, planning to list on the Main Board. China International Capital Corporation and Citigroup will serve as joint sponsors.

If the review goes smoothly, this company—founded by former NVIDIA engineer Xu Chi and backed by institutions such as Alibaba, Kuaishou, Sequoia Capital, Hillhouse Capital, Shunwei Capital, and others—will be just one step away from becoming the “world’s No. 1 AR glasses stock.”

The prospectus has not yet disclosed the amount of financing it plans to raise from this Hong Kong stock offering, but judging from its cash reserves over the past nearly 3 years, rushing to an IPO in Hong Kong has become an inevitable choice for XREAL to ease funding pressure and stockpile “supplies.”

Regarding XREAL’s move to push for a Hong Kong listing at this time, angel investor and veteran artificial intelligence expert Guo Tao analyzed that this is more like a choice of the “window period.”

“On the one hand, although the smart glasses segment is still in the early stage, giants like Meta, Apple, and Xiaomi have already entered. XREAL urgently needs to raise capital through listing to replenish its funding, while increasing R&D and expanding channels to maintain its first-mover advantage. On the other hand, Hong Kong has recently optimized its listing rules and has specifically given a green light to hard-tech enterprises like XREAL. While the window period is still open, accelerate the progress of listing,” Guo Tao said.

Former NVIDIA employee rushes into the AR track

XREAL was founded in 2016.

In those years, the wealth story of Facebook’s $2 billion acquisition of virtual reality technology company OculusVR pushed the Silicon Valley VR/AR investment wave to its peak. AR company Magic Leap, with a valuation in the hundreds of billions of dollars, also became the most mysterious unicorn in the tech world at the time.

Back then, Xu Chi, who served as an NVIDIA GPU architecture engineer, chose to leave NVIDIA and join Magic Leap. He became one of the early employees on Magic Leap’s 3D computer vision algorithm team, focusing on spatial computing algorithms and optimizing them for mobile devices.

What truly drove him to start his business back in China was an unexpected conversation. “At that time, none of my high school classmates had ever been in touch with VR/AR, but they told me to start a business making VR—somehow they even raised money. It was pretty unbelievable,” Xu Chi recalled.

In the second half of 2016, Xu Chi chose to return to China to conduct industrial research. Shortly afterward, he brought along his Zhejiang University classmate Xiao Bing (then an optical design engineer at China Aviation Research Institute) and his junior Wu Kejian (who had participated in the Google Tango project). In early 2017, they officially founded XREAL (then named Nreal). Their goal was very clear: to make a truly consumer-grade AR glasses product, and to make “China’s Magic Leap.”

In 2019, XREAL Light made its debut at CES and became XREAL’s first commercially launched consumer-grade AR glasses. However, launching a consumer product before his former employer also brought Xu Chi no small amount of trouble. Magic Leap immediately filed a lawsuit against him, accusing him of stealing technology to create its own AR devices.

The lawsuit lasted more than a year. Finally, in June 2020, a federal judge in San Jose, California dismissed Magic Leap’s claims, saying the evidence was insufficient and that the related dispute had been resolved in 2020.

In the same year, 2020, XREAL released NebulaOS, its self-developed system that brought system-level spatial interaction capabilities to AR glasses; in 2021 it built a self-owned optical module manufacturing plant in Wuxi; and in 2022 it released the XREAL Air series.

According to IDC data, in 2022, XREAL shipped 98,000 units, up 717% year over year from 2021. It accounted for 37% of global shipments of consumer AR devices, with a market share of 57% in the global consumer AR glasses market.

Photo shows the various funding rounds of XREAL as presented in its prospectus

The prospectus shows that over these 6 years, XREAL completed 8 rounds of financing from seed round to C+ round. Among them, the total financing for the seed round, angel round, and A round was approximately RMB 78.8344 million; the total financing for the A+ round, B round, B1 round, C round, and C+ round was approximately $244 million (about RMB 1.7 billion).

In particular, the $125 million Series C round co-led by NIO Capital, Yunfeng Fund, and Hongtai Fund in September 2021, as well as the $50 million C+ round led by Alibaba in March 2022, provided ample “ammunition” for XREAL’s technological reserves.

For example, XREAL’s self-developed spatial computing chip X1 was inspired by a prompt from Li Bin (founder of NIO).

“Li Bin, after trying on the consumer version of XREAL Light, had two remarks. One was that we wouldn’t need to make projectors in the future—this product could definitely replace projectors. The other was that you should consider developing your own self-developed AR glasses chip,” Xu Chi recalled.

Public information indicates that thanks to the X1 chip, XREAL One can achieve native 3DoF spatial anchoring: the screen is fixed at a spatial position set by the user, and will not shift as the user’s head moves.

“Racing the clock” to rush an IPO in Hong Kong

However, XREAL’s sustained heavy R&D investment in chip architecture, optical engines, spatial sensing algorithms, and its operating system—together with high marketing expenditures for global channel expansion—has not only kept its revenue growth at 30.80% (in 2025), but also put the company in a “growing revenue but not profits” predicament.

The prospectus shows that from 2023 to 2025, XREAL’s annual revenues were RMB 390 million, RMB 394 million, and RMB 516 million. Gross profits were RMB 73.321 million, RMB 87.303 million, and RMB 181.378 million, and its gross margin also rose from 18.8% in 2023 to 35.2% in 2025.

XREAL’s continuous improvement in gross margin is driven by product structure upgrading to mid-to-high-end segments, the emergence of economies of scale, and cost optimization enabled by an independently controllable and self-managed supply chain.

For example, the mid-to-high-end One series launched at the end of 2024, with sales reaching 111,400 units in 2025, generated RMB 356 million in revenue—accounting for 69% of total revenue—and became the company’s largest revenue source.

But in terms of net profit, XREAL has remained loss-making. From 2023 to 2025, its net losses were RMB 882 million, RMB 709 million, and RMB 456 million; its cumulative losses over three years exceeded RMB 2.047 billion.

Breaking down the prospectus reveals that one of the core reasons for XREAL’s losses is its strategic heavy re-investment in technology and market marketing.

From 2023 to 2025, its R&D expenses were RMB 216 million, RMB 204 million, and RMB 183 million respectively. Although the total amount declined slightly, the proportion relative to total revenue remained as high as 55.3%, 51.8%, and 35.5%.

In addition, to build channels globally, XREAL’s sales and distribution expenses also stayed high.

XREAL’s market is mainly concentrated in overseas markets such as the United States, Europe, and other countries or regions. The prospectus shows that from 2023 to 2025, its overseas revenue was RMB 254.7 million, RMB 260 million, and RMB 366.1 million, accounting for 65.3%, 65.9%, and 71.0% of total revenue, respectively.

To expand global markets, build channels, and promote its brand, from 2023 to 2025 its sales and distribution expenses were RMB 214 million, RMB 143 million, and RMB 131 million, accounting for 54.9%, 36.3%, and 25.4% of total revenue, respectively.

Beyond losses, the real “Damocles’ sword” hanging over XREAL is its continuously deteriorating cash flow situation.

The prospectus shows that from 2023 to 2025, XREAL’s cash and cash equivalents at the end of the period were RMB 181 million, RMB 205 million, and RMB 64 million, respectively.

If we take its 2025 net cash outflow from operating activities of RMB 203.5 million as an extreme scenario, the company’s average monthly cash burn is about RMB 16.96 million. With only RMB 64 million in cash reserves, it can sustain normal operations for only about 3.75 months.

Or, to ease funding pressure: already 4 years without raising funds, XREAL announced a Series D financing in January 2026, raising $67.764 million and valuing the company at $833.5 million post-money (nearly HK$6.5 billion).

Judging from its net current liabilities over the past three years, XREAL’s short-term funding gap has continued to expand—from RMB 1.933 billion in 2023 to RMB 3.084 billion at the end of 2025.

In response, the prospectus explains that the decrease in current assets was mainly due to a reduction in cash and cash equivalents of RMB 141.1 million; the increase in current liabilities was mainly due to an increase of RMB 247.6 million in preferred shares, warrants, and convertible notes, plus RMB 151.3 million of other due liabilities.

That is to say, over 2023 to 2025, XREAL has had less and less cash available to it, while “nominal liabilities” such as investors’ preferred shares and convertible bonds have continued to increase—directly leading to the short-term funding gap widening year by year.

It is worth pointing out that for unlisted startups, preferred shares, warrants, and convertible notes issued at the time of financing—even though they are classified as “current liabilities” under accounting standards—essentially represent equity interests. After the company completes its Hong Kong listing, these preferred shares typically convert into ordinary shares, and the corresponding liabilities shift into shareholders’ equity, being removed from the balance sheet; they will not generate actual cash outflows for repayment of principal and interest.

The prospectus shows that the total scale of preferred shares, warrants, and convertible notes issued in XREAL’s prior financing rounds totals nearly RMB 2.924 billion. All these financial instruments are recorded under the liabilities category in its financial reports.

In other words, as long as XREAL can successfully list, it can not only raise urgently needed operating funds through the secondary market to fill the cash flow gap; more importantly, this large “nominal debt” of RMB 2.924 billion on the books will most likely be converted into equity.

At that time, XREAL’s previously high net current liabilities of RMB 3.084 billion will undergo a fundamental structural reversal, and the financial statements will return from the brink of insolvency to a healthier state.

If it doesn’t list now, will it be too late?

If XREAL’s own cash flow and liability pressure are its internal problems, then the increasingly fierce competition in the smart glasses track is the external challenge it has to face.

“If XREAL misses the opportunity to become the ‘world’s No. 1 AR glasses stock,’ it is very possible that it will end up passive in the giants’ encirclement and competition with peers,” Guo Tao analyzed.

Since 2025, smart glasses have been evolving from a niche track into the core entry point contested by tech giants for next-generation human-computer interaction.

“Traditional wearable devices face development bottlenecks due to the lack of interaction methods such as keyboards, touchscreens, or mice. Meanwhile, breakthroughs in AI large models have significantly enhanced multi-modal interaction capabilities such as speech recognition and natural language processing, making XR devices (including AI glasses) a potential next-generation core interaction entry point that fuses vision, hearing, and language. If the core engineering issues—such as weight, battery life, and display—can be thoroughly solved, AI glasses are expected to become the next personal computing platform after smartphones,” said Wang Guangxi, Managing Partner at Lenovo Venture Capital.

In overseas markets, reports from foreign media say Meta plans to deepen cooperation with European eyewear giant EssilorLuxottica (EssilorLuxottica, Luxottica). It plans to increase the production capacity of Ray-Ban smart glasses to 20 million units in 2026. Apple also plans to release Apple Glasses by the end of 2026, officially entering the lightweight consumer smart glasses track.

In the domestic market, besides vertical competitors such as Leike Innovation, Rokid, and Yingmu Technology, tech giants including Xiaomi, Huawei, and ByteDance are also stepping in. Leveraging mature supply chains, offline channels, and advantages in the mobile ecosystem, they are quickly grabbing market share.

In response to the dense entry by big firms, Xu Chi previously stated publicly: “Everyone is sprinting. The core reason is that no one has established core barriers, and no one has figured out where their differentiation is and where they can improve user experience. If these issues haven’t been handled well, we still haven’t returned to the essence of business.”

However, building core technological barriers and refining user experience both require continuous investment of real money. Before XREAL opens a continuous financing channel through a Hong Kong IPO and alleviates the RMB 3 billion level of current-liabilities pressure, keeping itself steadily on the playing field is its top priority right now.

Now that competition in the AI hardware track is intensifying and the time window for a Hong Kong listing is also fleeting, an executive from an international law firm revealed: “There are currently nearly 500 companies queuing to list in Hong Kong, but the proportion that can ultimately successfully land on the Hong Kong Stock Exchange is only around 50%.”