JPMorgan has released a research report, increasing its adjusted earnings per share forecasts for Alibaba-W (09988) for the fiscal years 2027 and 2028 by 4% and 3%, respectively, to reflect improved cloud margin prospects. The firm has raised its target price for Alibaba's H-shares from HK$195 to HK$200 and for Alibaba's (BABA.US) US-listed shares from $200 to $205, maintaining an "Overweight" rating on both.
JPMorgan has upgraded its confidence in Alibaba's structural growth over the next 12 months. Alibaba disclosed that its cloud external revenue growth accelerated to 40% in the quarter ending March, with the annual run rate (ARR) for Model-as-a-Service (MaaS) rising from over RMB 8 billion and expected to reach RMB 30 billion by year-end. Furthermore, the EBITA margin guidance for the cloud business is projected to improve from 9% to double digits over the next one to two quarters, solidifying Alibaba Cloud's position as China's largest AI and cloud franchise. However, the market currently prices Alibaba as a classic e-commerce company, implying that the value of its cloud business has not been fully priced in.
The report notes that, based on a sum-of-the-parts (SOTP) valuation, the implied value of Alibaba Cloud far exceeds its current pricing within the consolidated equity. Although path risks remain in the market—such as a projected drag of approximately 7 percentage points on customer management revenue (CMR) over four quarters due to revenue reduction initiatives, and unclear signals on capital returns—the improvement in cloud margins serves as a key short-term catalyst.
Comments