Wall Street's current consensus is clear: despite facing macroeconomic headwinds in its core e-commerce business, Alibaba is undergoing a profound transformation driven by an accelerating cloud business and AI capital expenditure.
According to Zhui Feng Trading Desk, on January 8th, based on the latest research reports from Morgan Stanley and Barclays, analysts generally expect Alibaba Cloud to achieve a further surge in revenue growth, propelled by AI demand, solidifying its position as China's premier AI enabler. Simultaneously, although the overall consumer environment is softening, investors are anticipated to see significant progress in loss control for the Quick Commerce business under the "Taotian" Group, marking a notable achievement for the company in balancing market share with profitability.
For investors, the most critical signal lies in the word "acceleration"—cloud business revenue growth is expected to exceed 35%, and this momentum is projected to remain strong in the coming quarters.
Cloud Intelligence and AI Business: Growth Engine Firing on All Cylinders In the upcoming earnings report, the performance of Alibaba Cloud is undoubtedly the biggest highlight. It is no longer just a stable revenue source but has become the engine driving Alibaba back onto a fast growth track. Morgan Stanley analyst Gary Yu pointed out in a report that Alibaba Cloud's revenue growth is expected to maintain strong momentum, with year-on-year growth potentially accelerating to over 35%, not only higher than the 34% in the previous quarter but also possessing the potential to further accelerate to 40% in the 2027 fiscal year. The firm believes this growth trend reinforces the investment thesis of Alibaba as "China's best AI enabler."
This growth is not a flash in the pan but is attributed to Alibaba's continuous investment in the AI field and the deployment of consumer-facing applications. Morgan Stanley specifically highlighted the upgrade of Tongyi Qianwen (Qwen APP), the revamp of Quark, and the launch of Quark Glasses, initiatives that have significantly boosted internal AI adoption rates and external customer demand. Barclays analyst Jiong Shao is similarly optimistic about this trend, noting that this is expected to be the ninth consecutive quarter of accelerating revenue growth for Alibaba Cloud, and current forecasts may still be conservative. Barclays emphasized that Alibaba is the only full-stack AI leader among Chinese cloud providers, possessing highly competitive LLMs and AI infrastructure.
Regarding profitability, Morgan Stanley expects Alibaba Cloud to maintain a stable EBITA margin of approximately 9%. This indicates that while revenue is expanding rapidly, the company has retained good cost control capabilities, successfully converting its technological advantages into tangible financial returns.
Core E-commerce Business: Resilience and Adjustment Amid Macro Headwinds Although there are concerns about a slowdown in the core e-commerce business, the two brokerages' in-depth data analysis suggests this is more due to short-term fluctuations in the macro environment rather than a loss of competitiveness.
Influenced by a slowdown in overall online retail sales growth in October and November and the high base effect from the software service fee introduced last September, core marketplace revenue growth is expected to slow to 3% this quarter.
However, Barclays' analysis indicates that Alibaba's market share in the core e-commerce space has remained relatively stable. This suggests that against the backdrop of weak consumption and intensified industry competition, Alibaba has still managed to hold its ground. Morgan Stanley expects China commerce EBITA to decline by 3%, which is a resilient performance given the current macro environment. Investors should recognize that the current slowdown is largely cyclical, not a structural collapse. As macro policies gradually take effect, this core cash cow business is expected to stabilize in the future.
Profitability Analysis: Loss Narrowing Coexists with Strategic Investment The most easily misinterpreted part of the earnings data may be the projected 45% year-on-year decline in adjusted EBITA to 30 billion RMB. While this figure appears pressured on the surface, a breakdown reveals the underlying logic is "trading short-term profit for long-term moats" and "staunching losses."
First, loss management for the quick commerce business has achieved significant progress. Morgan Stanley expects losses from this segment to narrow sharply to 23 billion RMB from 35 billion RMB in the previous quarter; Barclays similarly believes losses for this segment likely peaked in the September quarter and expects a quarter-on-quarter loss reduction of at least 10 billion RMB this quarter. This signifies that management, while pursuing market share, has begun to take efficiency issues extremely seriously.
Second, the EBITA loss for the "All others" segment widened to 7 billion RMB, but this was entirely driven by increased internal AI adoption rates and rising model training costs. The explosive growth, evidenced by Tongyi Qianwen APP surpassing 10 million downloads in its first week, necessarily accompanies high-intensity computing investment. For forward-looking investors, this type of loss, arising from betting on the future of AI, actually represents high-quality capital allocation.
Valuation and Outlook: Long-Term Thesis Remains Unchanged Although, considering the short-term weakness in the core e-commerce business and ongoing strategic investments, Morgan Stanley lowered its adjusted EBITA forecasts for fiscal years 2026 and 2027 by 7% and 15% respectively, and reduced its target price from $200 to $180, this did not alter its core "Overweight" rating. Barclays was more steadfast, maintaining its $195 target price.
The consensus between the two top-tier institutions is that Alibaba remains the most attractive vehicle for the China AI narrative. The current stock price has largely priced in expectations of weak consumption but fails to fully reflect the potential for valuation rerating stemming from cloud business acceleration and improvements in loss-making businesses.
With the continuous scaling of AI-related revenue and the further narrowing of losses in non-core businesses, Alibaba is constructing a new, more technologically intensive growth model. For patient capital, the current pullback might present an opportunity to position for the next AI-driven cycle.
Comments