Internet Retail · #51 in the Retail 100

Alibaba

BABA

Our rating: hold
12-month target: $123.16 +22.7%
Expected vs. S&P 500: +5.2 ptsSee the math
Next earnings: Nov 24In 19 daysEarnings calls page ↗

Alibaba's AI spending turned free cash flow into an RMB 44.7B outflow last quarter, so its cash pile is shrinking while e-commerce profit stalls.

Summary

Alibaba runs China's largest online marketplaces, Taobao and Tmall, along with a quick-delivery business that is now a fifth of revenue, China's leading AI cloud and AliExpress abroad. Under CEO Eddie Wu it is spending heavily on AI and fast delivery, and earnings have fallen sharply as a result. Meanwhile the marketplace profits that pay for it have stopped growing. The stock depends on cloud revenue growing fast enough to earn back that spending before Alibaba needs more outside money.

$100.36

-$73.11 (-42.15%)Past year

What Alibaba does

Alibaba runs Taobao and Tmall, the world's largest online marketplaces by value of goods sold. Most of its profit comes from merchants paying for ads there, and that cash funds China's largest public cloud.^1,29

What it sells

Taobao and Tmall41% of revenue, June quarter 2026
Online marketplaces where merchants pay for ads and commissions. Those fees were about three-quarters of this line in the June quarter.
Quick delivery20% of revenue, June quarter 2026
Taobao Instant Commerce and Freshippo stores deliver food and goods on demand. Growing fast, and it brings more shoppers back to Taobao.
AI cloud18% of revenue, June quarter 2026
China's largest public cloud by revenue in 2025, renting computing power and Alibaba's Qwen AI models to companies.
International stores10% of revenue, June quarter 2026
AliExpress, which lets buyers abroad order directly from Chinese sellers, plus Trendyol in Türkiye and Lazada in Southeast Asia.
Wholesale marketplaces5% of revenue, June quarter 2026
1688.com connects wholesale buyers and sellers inside China, and Alibaba.com serves businesses buying across borders.

Who buys it

Merchants and brands, mostly based in China, pay the marketplace fees, and Chinese shoppers buy the goods. Cloud customers are companies and developers. Alibaba says substantially all its revenue is earned in China, so it rises and falls with Chinese spending.

Where you've seen it

AliExpress lets shoppers buy directly from manufacturers in China, and the seller, not the buyer, pays Alibaba's fee.

The backstory

Eddie Wu became CEO in September 2023 and made two big bets. Alibaba committed RMB 380B over three years to AI infrastructure in February 2025, and that April it launched Taobao Instant Commerce, joining a delivery subsidy war with Meituan and JD.com. Adjusted earnings per ADS, the U.S.-listed share, fell 59% in fiscal 2026, mainly on that spending, Alibaba says. Wu's plan is to sell AI computing through Alibaba Cloud and its own chips while cutting delivery losses.

How the business makes money

Why Taobao's profits are paying for Alibaba's AI bet^{1,2,5,6,18,27}

Step 1
Merchants pay for ads and commissions on Taobao and Tmall, and quick delivery brings more shoppers back to the app.
Step 2
Shopping earns the money. Its profit was RMB 39.7B last quarter, more than the whole company's, because AI labs and apps lost RMB 13.9B.
Step 3
That profit, plus cash and new shares, pays for AI data centers. Spending on them rose 75% to RMB 67.7B in one quarter.
Step 4
Alibaba Cloud rents out that computing and its Qwen AI models. Its profit more than doubled to RMB 5.6B last quarter.
What shareholders get
Shareholders are paying in for now: Alibaba sold about $10.2B of new shares in August. The stock is betting cloud sales outrun data center costs.

Advantages

China's biggest AI cloud

Major advantage

Alibaba's biggest advantage. Omdia ranks it first in China's AI cloud market with a 38.1% share, and its cloud is growing faster than Tencent's.^1,22

Its own AI models and chips

Strong advantage

Hard to copy. Over 650 outside customers use its Zhenwu AI chips, and in August it released its Qwen3.8-Max model for anyone to use.^1,3

Its highest-spending shoppers

Supporting

Helpful, but not enough to lift Taobao. 88VIP, the paid membership for its highest-spending shoppers, grew by double digits to about 64 million by June.¹

What's changing

Alibaba is spending more on AI, and selling shares to pay for it

Alibaba is spending more on AI and selling shares to pay for it. August results showed adjusted earnings per ADS down 42%, and three days later it sold new shares. In June the Pentagon listed Alibaba among companies it says aid China's military, which Alibaba denies and has sued over. Anthropic told U.S. senators that Alibaba-linked operators illicitly extracted Claude's capabilities. A proposed shareholder class action cites both.^{1,4,7,8,23,24,25,26}

Competitors

Who else an investor would consider, and how they compare.

Company	Market value	What it does	Compared with Alibaba
Alibabathis stock	$249.67B	Alibaba runs Taobao and Tmall, the world's largest online marketplaces by value of goods sold. Most of its profit comes from merchants paying for ads there, and that cash funds China's largest public cloud.
PDD HoldingsPDD	$111.21B	Runs Pinduoduo in China and Temu abroad, winning shoppers on rock-bottom prices.	PDD sticks to cheap shopping; Alibaba spends its shopping profit building AI cloud.¹⁹
JD.comJD	$35.39B	Buys and sells goods itself, especially electronics, with its own delivery network.	JD owns its inventory and logistics; Alibaba mostly runs marketplaces for other sellers.²⁰
MeituanMPNGY	$58.22B	China's food-delivery leader, also selling restaurant deals and fast local shopping.	Meituan leads food delivery; Alibaba uses delivery to pull people into Taobao.²¹
TencentTCEHY	$446.93B	Runs WeChat, China's everyday app, plus games, ads and a growing cloud.	Tencent earns from WeChat and games; Alibaba's cloud grows faster, at 45%.²²

Leadership

Who runs the company, and how the stock has done under the CEO.

BABA +20.2%S&P 500 +75%Total return with dividends since Sep 2023

202420252026

Eddie Yongming WuFounder, CEO3 yrs, since 2023

Toby Hong XuCFO4.5 yrs, since 2022

Joseph C. TsaiFounder, Chairman3 yrs, since 2023

Wall Street on Wu: PositiveBarclays and Mizuho both raised their price targets to $195, citing cloud sales growing more than 38%. Mizuho warned that the cost of running AI models made profit miss forecasts and will push estimates lower.^L4

Leadership sources (5) · researched Oct 2026

L1Alibaba appoints Joseph Tsai as chairman and Eddie Wu as CEO in management change · TechNode, 2023-06-20
L2Alibaba Group announces CFO succession, Toby Xu to replace veteran Maggie Wu as CFO · People Matters, 2021-12-07
L3Joseph Tsai · Wikipedia, 2026-10-08
L4Wall Street Splits on Alibaba: Two Firms Hike Price Targets to $195 as Cloud Growth Hits 38% · 24/7 Wall St. via Yahoo Finance, 2026-05-14
L5Transcript: Alibaba Gr Hldgs Q1 2027 Earnings Conference Call · Sahm Capital, 2026-08-20

Bull vs. bear: two bets on the same stock

1
A share is a small slice of the company. Its value comes from the profits the company will make in the future.
2
Nobody knows those profits yet. Buyers (bulls) pay today's price betting they'll beat what most people expect. Sellers (bears) bet they'll fall short.
3
When results come in, the price moves toward whichever side was right, and that side makes money.

The question they disagree on

Will AI cloud revenue keep growing 40% or more a year, fast enough to earn back capital spending that reached RMB 67.7B last quarter?^{1,2,3,4,13,14,21,24,28}

Bull case: why buyers buy

Cloud keeps growing above 40% and quick commerce keeps cutting losses, so earnings per ADS rise about 40% next year and today's spending looks well timed.

Cloud is growing faster and now makes real money. Its adjusted operating profit more than doubled to RMB 5.6B last quarter.
AI demand has been strong for years. AI-related product revenue has at least doubled from a year earlier for 12 straight quarters.
The delivery price war is cooling. Quick commerce revenue rose 45% with better per-order economics, and rival Meituan returned to profit, SCMP reported.
The stock is priced for little. On October 5 it traded at about 14 times expected earnings, with analysts expecting about 40% growth the year after.

Bear case: why sellers sell

If spending keeps outrunning cloud revenue and Taobao keeps stalling, Alibaba keeps burning cash, may sell more shares, and earnings stay well below fiscal 2025 levels.

Spending is rising much faster than cloud revenue. Capital spending rose 75% to RMB 67.7B in one quarter.
Alibaba keeps missing profit estimates. It has fallen short four quarters in a row, and its AI labs and apps lost RMB 13.9B last quarter.
Shareholders are helping pay for AI. In August Alibaba sold about $10.2B of new Hong Kong shares, adding about 3.7% to its share count.
The marketplace that funds it all has stalled. Merchant revenue fell 7% as reported, and underlying growth slowed from 8% in the March quarter.

Where Delphi landsholdWe think today's price already weighs both sides fairly.See why

What to watch

The numbers that will settle the debate.

AI cloud revenue growth▲ improving

Up 45% to RMB 48.4B last quarter, with an adjusted operating margin of about 12%¹

Shows whether AI demand is large enough to pay back the data center spending.

AI spending▼ worsening

Capital spending up 75% to RMB 67.7B last quarter; free cash flow negative RMB 44.7B¹

Shows how much cash and profit the AI build uses up before cloud profit catches up.

Shopping and quick commerce revenue▼ worsening

Merchant revenue down 7%, or up 1% excluding an accounting change; quick commerce up 45% to RMB 53.3B^1,2

Merchant revenue funds everything else, and quick commerce, about a fifth of revenue, is meant to lift it.

Next earnings report

Nov 24

In 19 days

Earnings calls page ↗

Expected earnings per share: $1.61
Expected revenue: $40.25B

What to listen for: Whether cloud growth stays above 40% while capital spending and AI labs losses stop rising, and whether Taobao advertising grows excluding the accounting change.¹³

What would prove this wrong

✕AI cloud revenue growth falls below 30% while capital spending keeps rising.
✕Alibaba sells more new shares or cuts its dividend to fund AI.
✕Taobao and Tmall advertising revenue shrinks, excluding accounting changes.
✕U.S. rules move from the Pentagon list to investment or export bans.

Our ratingHoldas of Nov 3 close, $100.36 · what ratings mean

Cloud growth is accelerating and analysts expect earnings to rise about 40%, but four straight misses and heavy spending leave expected gains only slightly ahead of the S&P 500.

12-month target: $123.16 (+22.7%)
Plus dividend: +1.0%
S&P 500, same method, with dividends: +18.5%
Expected vs the market: +5.2 points

The math behind the recommendation

Three 12-month price scenarios, weighted by probability, compared with the S&P 500 under the same method.

Now $100.36

Target $123.16

bull case20% likely

$172.66 +72%

Cloud keeps growing above 40%, quick commerce breaks even and earnings reach the top of analyst estimates, earning the stock a higher valuation.

$13.10 earnings per share × 13.2 = $172.66

base case50% likely

$123.73 +23%

Cloud grows near 40% and e-commerce profit holds, so earnings per ADS rise about 40%, as analysts expect, even as free cash flow stays negative.

$11.02 earnings per share × 11.2 = $123.73

bear case30% likely

$89.22 -11%

Spending keeps outrunning cloud revenue and Taobao advertising shrinks, so earnings land in the lower half of analyst estimates and the valuation falls.

$9.15 earnings per share × 9.7 = $89.22

Why these odds: Alibaba missed adjusted earnings estimates four straight quarters, and while estimates were flat over 90 days, cuts outnumbered raises 8 to 2 last month. We assume no new shares, since RMB 475B of cash covers expected cash burn.

How the prices are built: Wall Street expects earnings per share of $11.02 for the year starting a year from now (analysts range from $7.29 to $15.17). Today the stock trades at 12.7 times next year's earnings per share; its five-year middle is 11.65. Because earnings per share is forecast to grow fast, valuations are cut 10%, since fast growth rarely keeps its price.^{1,13,14,16,17}

What tests the call: September quarter 2026 earnings (Nov 24)

Buy means expected to beat the S&P 500 by 10+ points over 12 months; Sell means expected to trail it by 10+. Inputs gathered Oct 5; the recommendation updates with the price every day. Model-generated, not personalized investment advice. How ratings work · Track record

What the price assumes

At $100.36, investors pay less for each dollar of Alibaba's earnings than for the average stock's

Alibaba trades at 13 times the earnings analysts expect over the next 12 months. That ratio is the multiple: what investors pay today for each dollar of a year's earnings. That is above its five-year middle of 12.

Analysts expect earnings to grow about 39% the year after, against about 16% for the S&P 500. The S&P 500 trades at 19 times. At the market's multiple, today's price would only make sense if Alibaba earned about 32% less than forecast over the next year.

Alibaba multiple: 13×
S&P 500 multiple: 19×
Base case: +23%
Bear case: −11%

The skewOur bear case loses about 48¢ for every $1 our base case makes. That ratio, how much you stand to lose against how much you stand to make, is the skew.

Last earnings

No reported quarters available.