Alibaba's Stock Comeback Has More Room To Run, Say Analysts
News Summary
Alibaba Group Holding Ltd. (NYSE:BABA) stock climbed on Monday as strong performance in its cloud business and advancements in artificial intelligence models offset investor concerns over escalating U.S.-China tensions. Analysts from Goldman Sachs, Daiwa Securities, and China International Capital Corporation (CICC) highlighted Alibaba Cloud’s growth and early profit recovery on Taobao and Tmall as key drivers behind the rebound. Goldman Sachs raised Alibaba’s capital expenditure forecast for fiscal 2026–2028 to 460 billion Chinese yuan and increased cloud revenue growth projections to 31%, 38%, and 37% year-over-year over the next three fiscal years, citing breakthroughs in multimodal AI models and diversified chip supply. The firm also lifted its price forecast for Alibaba from $179 to $205, maintaining a Buy rating. Daiwa Securities expects Alibaba to report a relatively high EBITA loss of up to 35 billion Chinese yuan in the third quarter of fiscal 2026, but anticipates the loss to peak and decline thereafter. CICC projected Alibaba’s second-quarter fiscal 2026 revenue to rise 3.8% year-over-year to 245.5 billion Chinese yuan, while adjusted EBITA is expected to fall 83% to 7.1 billion Chinese yuan, missing consensus estimates, primarily due to higher investments in flash purchase services and widening losses in other business segments. Despite some lowered earnings forecasts, analysts largely maintained Buy or Outperform ratings.
Background
In 2025, with Donald J. Trump re-elected as US President, his administration's stance on Chinese technology companies remains a key focus for investors. Alibaba, as a leading Chinese tech giant, continues to see its business performance, particularly in cloud computing and core e-commerce, influenced by both macroeconomic and geopolitical environments. In recent years, Alibaba has invested heavily in cloud computing and actively positioned itself in artificial intelligence, aiming to drive growth through technological innovation. Concurrently, its core e-commerce platforms, Taobao and Tmall, face intense market competition, making profitability optimization crucial. These analyst assessments are the latest judgments on Alibaba's future growth potential and profitability trajectory within this broader context.
In-Depth AI Insights
What are the underlying strategic shifts driving Alibaba's stock comeback despite US-China tensions? - Alibaba's stock rebound is primarily driven by internal strategic adjustments and business diversification, rather than an easing of geopolitical tensions. Breakthroughs in cloud computing and artificial intelligence, particularly the application of multimodal AI models and diversification of chip supply, are providing growth momentum that transcends macro uncertainties. - The recovery in profitability of its core e-commerce businesses (Taobao and Tmall), along with the synergistic effects of its local services platform, indicates progress in operational optimization and cost control. This has, to some extent, mitigated the impact of external risks. - Investors may be re-evaluating Alibaba's intrinsic value, shifting focus from geopolitical risks to its leadership and execution in critical growth areas. How do divergent analyst forecasts (e.g., CICC's profit warning vs. Goldman's higher price target) inform the investment risk-reward assessment? - This divergence reflects differing views on the trade-off between Alibaba's short-term investments (e.g., flash purchase services) and long-term growth engines (e.g., cloud computing and AI). CICC's profit warning highlights the pressure of high short-term investments on profits and the uncertainty during the incubation period of new businesses. - Goldman Sachs' higher price target, conversely, emphasizes the long-term growth potential of cloud and AI businesses and their contribution to overall valuation, viewing short-term profit volatility as necessary investment for future growth. - Investors need to weigh these perspectives, recognizing that Alibaba's growth trajectory may involve short-term profit volatility, but its long-term investments in strategic areas are expected to yield significant returns. This demands a longer investment horizon and tolerance for short-term earnings pressure. What are the long-term implications of Alibaba's aggressive CapEx and AI investment strategy for its competitive position in the global tech landscape? - Alibaba's high capital expenditure on AI and cloud is a critical move to maintain technological leadership and address global competition. This not only solidifies its leadership in the Chinese market but also aids its global expansion in international digital commerce and cloud services, despite potential challenges from US-China tech decoupling. - Continued AI investment will enable the company to build deeper moats in AI-driven daily consumption, smart logistics, and enterprise services, especially leveraging its local advantages in data and algorithms. - However, high CapEx also implies short-term pressure on free cash flow and potential uncertainty in investment returns amidst intense AI technological competition. Its ability to balance technological self-sufficiency with global supply chains will determine the extent of its international competitiveness.