Zheshang Securities released a research report reiterating a "Buy" rating on Alibaba-W (09988), with a corresponding target price of HKD 189.09. As a leading domestic cloud platform company with a full-stack AI positioning, Alibaba's high-growth cloud business and the high certainty of medium-term profit margin improvement are expected to drive valuation uplift. The main points from Zheshang Securities are as follows. Alibaba's Qwen AI achieved over 30 million monthly active users (MAU) within 23 days of public testing, becoming one of the world's fastest-growing AI applications, and is competing with Doubao for the AI user entry point. Qwen adopts a strategy of "free + premium + B2B open-source," integrated with the Alibaba ecosystem, focusing on professional scenarios and long-context processing. In contrast, Doubao, with over 100 million daily active users (DAU), leads domestic native AI applications by pursuing a closed-source, multi-modal Agent approach and a "free + premium + B2B MaaS" model, covering all scenarios and lightweight, high-frequency needs. The two differentiate in model architecture, ecosystem layout, core capabilities, and applicable scenarios. Qwen is expected to reshape the Alibaba ecosystem with its AI Agent capabilities of "autonomous decision-making + dynamic collaboration." In e-commerce, Qwen is reconstructing the entire "people-goods-scene" chain; on the merchant side, it enables cost reduction and efficiency gains through AI teams, while on the consumer side, it enhances experience via AI-powered universal search, price comparison, and personalized recommendations. Fliggy's "Ask Anything" feature operates 24/7 to deconstruct complex travel needs, linking real-time data to generate complete, bookable itineraries. By December 2025, Qwen will achieve system-level integration with Amap, accessing over 200 million Points of Interest (POI) and a real-time spatiotemporal engine, marking its transition into a life assistant and achieving a leap from "intent understanding" to "service execution." Capital expenditure is surging and free cash flow is under pressure, but cash reserves are ample, and the long-term certainty of cloud business profit margin improvement is high. Alibaba's capital expenditure for Q3 2025 reached RMB 31.428 billion, a year-on-year increase of 85.12%, indicating a period of rapid growth. Consecutive declines in free cash flow over Q2 and Q3 2025 have raised market concerns. The company's free cash flow in Q3 2025 was negative RMB 21.84 billion, primarily affected by the "food delivery battle" and a significant increase in capital expenditure. As of Q3 2025, Alibaba Group still held RMB 292.3 billion in net cash and other liquid investments on its books, providing a cushion for investments in new businesses. Alibaba Cloud's EBITA Margin still lags significantly behind the operating profit margins of Amazon AWS and Microsoft Intelligent Cloud. However, past experience from Google Cloud demonstrates that with scale expansion and the realization of economies of scale, the profit improvement potential for public cloud business is substantial. This implies that as Alibaba Cloud's scale grows and it moves beyond the early high-investment phase, the long-term certainty of profit margin improvement is high, with significant room for growth. Concurrently, Alibaba Cloud's overseas expansion is also expected to contribute to scale increase and enhanced profitability. Risks include intensified industry competition and slower-than-expected commercialization of AI applications.
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