I would watch margins next quarter, while giving Alibaba a modest cloud re-rating.
The bullish case is real: Cloud and Compute grew 45%, its strongest growth in 22 quarters, while cloud adjusted EBITA jumped 133% and margin expanded to about 12%. AI product revenue has also delivered triple-digit growth for 12 consecutive quarters.
But I would not fully re-rate BABA on cloud growth yet. The problem is capital intensity. Capex rose 75% to RMB67.7bn, while GAAP net profit fell roughly 75%. Management is effectively exchanging near-term earnings and free cash flow for future AI capacity.
The crucial question is therefore not whether AI demand exists. It clearly does. It is whether cloud revenue and margins can grow faster than AI infrastructure spending.
My hierarchy:
1. Cloud growth: bullish.
2. Cloud margin expansion: very bullish.
3. Capex trajectory: biggest risk.
4. Group margins/free cash flow: confirmation needed.
If next quarter shows 45%+ cloud growth + further cloud margin expansion + capex growth moderating, I would become much more aggressive on BABA. If cloud remains strong but capex keeps accelerating and group profitability deteriorates, the market may continue treating Alibaba as an expensive AI investment project rather than a cash-generating AI platform.
**Verdict: re-rate the cloud business gradually, but wait for margin and capex confirmation before giving Alibaba a full AI multiple.**
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