On August 20, Daqo New Energy (NYSE:DQ) held its second-quarter earnings call, and the numbers told two stories at once. The polysilicon business is still bleeding cash, with prices sitting below what it costs to make the stuff. But management spent much of the call talking about something else entirely: a new bet on the power infrastructure running the AI data center boom.
Losses Shrink While Policy Shifts
Revenue climbed to $62.7 million in the second quarter, up sharply from $26.7 million in the first quarter of 2026, after Daqo resumed normal sales activity in June. That volume shift showed up everywhere else, too. Gross loss narrowed to $82.7 million from $139.4 million in the first quarter, net loss came in at $81.2 million versus $88.4 million; and EBITDA improved to negative $29.3 million from negative $83.1 million. None of that means the business is healthy, but the trend line is moving in the right direction.
What is giving Daqo room to wait out the cycle is its balance sheet. The company carries zero debt and closed the quarter with $1.92 billion in total liquidity across cash, short-term investments, and bank deposits. That cushion matters because the industry backdrop is starting to shift in Daqo’s favor. On August 6, Daqo joined seven other polysilicon manufacturers in signing an initiative to stop below-cost sales, and a new national energy standard takes effect January 1, 2027, setting a consumption limit of 6.3 kilograms of coal equivalent per kilogram of output that will force noncompliant plants toward shutdown. Management pointed out that while roughly 3 million tons of industry capacity has been built, effective capacity has already fallen below 2 million tons as weaker producers cut utilization or close. Forward polysilicon prices have already rebounded more than 10% off their recent low.
Layered on top is the AI angle. On June 3, Daqo announced an investment agreement to build a manufacturing base for AIDC power infrastructure, including energy storage systems, solid-state transformers, and circuit breakers built around the 800V DC architecture that Nvidia and other AI infrastructure players are pushing. The company is also chasing a gap in semiconductor-grade polysilicon, where it pegs global demand at 75,000 tons against supply of just 57,000 tons.
Still Selling Below Production Cost
The core problem has not gone away. Gross margin was negative 132% in the quarter, and the reason is simple: Daqo’s average selling price fell to $4.04 per kilogram, down from $5.96 in the first quarter, while total production cost stayed flat at $5.95 per kilogram. That means every ton shipped in the second quarter lost money on paper, even with cash costs edging down slightly to $4.57 per kilogram. Nameplate capacity utilization ran at just 57%, a level management chose deliberately rather than chase volume into a falling market.
Demand itself remains soft. CFO Ming Yang noted the industry is still sitting on roughly 500,000 to 600,000 tons of inventory, and Chairman Xiang Xu described market sentiment as cautious amid weak domestic demand. Cash is draining to match: net cash used in operating activities hit $276.2 million for the first half of 2026, more than double the $105.4 million used in the same period a year earlier, while SG&A expenses rose to $15.8 million from $12.2 million as sales volume picked up.
The newer bets carry their own uncertainty. Management acknowledged that the qualification cycle for its semiconductor-grade polysilicon is taking longer than initially expected, and the AIDC push is still tiny relative to Daqo’s size, with only $30 million to $40 million earmarked for the effort in 2026. Both are early-stage ventures layered on top of a core business that is still losing money on every sale.
What The Market Is Pricing
Hedge fund ownership of Daqo fell from 20 funds to 16 in the most recent quarter, which points to institutions trimming rather than adding. Short interest sits at 9.90% of float, a level that reflects real, organized skepticism rather than routine hedging. The stock’s forward P/E of 21.37, as of August 26, assumes a return to profitability that has not shown up in the numbers yet, which is a striking gap given a business still posting triple-digit negative gross margins.
Two Bets, One Balance Sheet
Daqo’s quarter is really two stories layered on top of each other: a polysilicon business still selling below cost, and a balance sheet strong enough to fund a pivot into AI power infrastructure and semiconductor materials while it waits. The zero-debt structure and $1.92 billion liquidity buffer are what make patience possible.
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