BABA: Cloud AI Monetization Will Drive Stronger Long-Term Earnings Power

Analysts made a marginal upward revision to their fair value estimate for Alibaba Group Holding to approximately $198 per share, reflecting slightly stronger long term cloud and artificial intelligence monetization prospects that more than offset modestly reduced revenue and profit forecasts tied to quick commerce and customer management headwinds.

Analyst Commentary

Street research on Alibaba remains broadly constructive, with a series of upward price target revisions anchored in improving cloud and artificial intelligence monetization, partly offset by concerns around near term profitability in quick commerce and customer management revenue.

Bullish Takeaways

• Bullish analysts are lifting price targets into the mid to high $100s and even above $200, reflecting increased confidence that Alibaba's cloud and AI businesses can sustain above market growth and support higher long term earnings power.
• Multiple firms highlight rapid acceleration in cloud revenue, with recent fiscal Q2 cloud growth in the mid 30 percent range and expectations for triple digit growth in AI related revenue, which is seen as a key driver of multiple expansion.
• Alibaba Cloud is increasingly viewed as a full stack AI services platform, with its Qwen foundational models and full stack offerings positioning the company among a small group of global hyperscalers, supporting a premium valuation versus domestic peers.
• Evidence of improving order trends, stronger delivery growth and positive feedback from events like the Apsara Conference reinforce the view that AI driven demand can offset cyclical softness in other parts of the portfolio and underpin sustained top line growth.

Bearish Takeaways

• Bearish analysts are trimming medium term revenue and profit forecasts, particularly for FY26 to FY28, as slower customer management revenue growth and a more measured outlook for quick commerce weigh on near term earnings leverage.
• Some research points to compressed profitability in the near term due to ongoing investment in quick commerce and food delivery, which delays margin normalization and makes the path to higher free cash flow less linear.
• There is concern that after a strong share price rally and a rapid reset in expectations post Apsara, valuation has moved closer to an "art more than science" zone, leaving less room for execution missteps or macro headwinds.
• A subset of the Street warns that continued heavy capital expenditure and incentives to capture AI and cloud share could cap near term returns on invested capital, even if they ultimately enhance Alibaba's strategic positioning.

What's in the News

• Alibaba's Qwen consumer AI assistant surpassed 10M downloads in its first week of public beta, outpacing early adoption of global rivals and underscoring the company's push to build a leading domestic AI platform (South China Morning Post).
• The company plans to overhaul and rebrand its flagship mobile AI app as "Qwen." It will add agentic-AI features to support shopping across Taobao and other platforms in a bid to deepen consumer monetization while keeping access free initially (Bloomberg).
• A White House national security memo alleges Alibaba has provided technology support and AI services to the Chinese military targeting U.S. interests. The company strongly denies the accusations as "complete nonsense" and an attempt to "manipulate public opinion" (Financial Times).
• Alibaba Cloud detailed a GPU pooling system that it says can cut the number of Nvidia H20 chips needed by 82 percent when serving large language models. This highlights efficiency gains that could partially offset U.S. export controls (South China Morning Post).
• Salesforce's Slack will end direct service in China and instead rely on Alibaba as its local provider. This reinforces Alibaba's role as a key enterprise infrastructure partner for global software vendors operating in the mainland (The Information).

Valuation Changes

• Fair Value Estimate edged up slightly from $197.98 to $198.04 per share, reflecting a marginally more optimistic long term outlook.
• Discount Rate increased slightly from 9.27 percent to 9.30 percent, implying a modestly higher required return for equity holders.
• Revenue Growth was essentially unchanged, moving fractionally from 9.34 percent to 9.34 percent, indicating a stable long term growth outlook.
• Net Profit Margin was effectively flat, easing insignificantly from 13.25 percent to 13.25 percent, suggesting no material shift in profitability assumptions.
• Future P/E declined slightly from 24.30x to 24.23x, pointing to a marginally lower valuation multiple on forward earnings.