Alibaba Stock Price Forecast - BABA Shares Rallies to $164.26

Alibaba Stock Price Forecast - (NYSE:BABA) Strengthens AI and Cloud Dominance Amid Market Mispricing

Alibaba Group Holding Ltd. (NYSE:BABA) closed at $164.26, up 4.39%, marking its strongest weekly gain since early November as investors reassessed the company’s fiscal Q2 and Q3 results. The market initially punished Alibaba for a 71% year-over-year drop in EPS and negative free cash flow of roughly $3 billion, but the selloff missed the underlying drivers — heavy front-loaded investments into AI infrastructure, accelerated cloud expansion, and quick commerce growth. The company’s market capitalization stands at $392.08 billion with a P/E ratio of 22.2, still well below Amazon’s 30x forward multiple, suggesting the valuation discount persists despite improving fundamentals.

AI Expansion Redefines Alibaba’s Growth Narrative

Alibaba’s Cloud Intelligence Group remains the company’s central growth engine, posting 34% year-over-year revenue growth, driven by AI-related products that have now recorded nine consecutive quarters of triple-digit expansion. The segment’s share of total revenue increased from 12.5% to 16.1% in one year, a major structural shift that mirrors the early-stage trajectory of Amazon Web Services (AWS) in 2016. The management’s AI strategy is centered around the Qwen large language model (LLM), now adopted across Alibaba’s cloud services and e-commerce operations. The latest iteration of Qwen surpassed 10 million downloads in its first week after launch, underlining its growing enterprise relevance.

The company is also leveraging China’s industrial policy tailwinds. Beijing’s AI and semiconductor subsidy program slashed energy costs for hyperscale data centers by up to 50%, directly benefiting Alibaba’s gross margins. These policies enable domestic players like Alibaba to scale AI computing clusters without the cost burden faced by Western peers reliant on imported chips.

Financial Performance: Headline Weakness Masks Structural Strength

Revenue for the September quarter reached RMB 247.8 billion ($34.8 billion), beating estimates by $570 million and showing a 5% year-over-year growth, or 15% on a like-for-like basis when adjusted for disposed assets such as Sun Art and Intime Retail. While EPS fell to $0.61, the decline primarily reflected asset disposals and capital allocation to cloud build-outs, not operational deterioration. Gross margin expanded from 36.9% to 41.2%, and despite a temporary hit to operating income, underlying unit economics improved across key divisions.

Operating income dropped to RMB 5.36 billion, reflecting an 86% year-over-year contraction, but CapEx soared 85% year-over-year to RMB 31.4 billion ($4.4 billion) — a strategic reallocation to support cloud infrastructure and the Qwen ecosystem. Product development expenses increased 26% to RMB 15.7 billion, concentrated in AI training and cloud security systems. Alibaba still maintains a fortress balance sheet with $41 billion in net cash and $19.1 billion remaining under its share repurchase authorization.

E-Commerce and Quick Commerce Continue to Outperform

Alibaba’s core Taobao and Tmall Group delivered 16% year-over-year growth, powered by improved customer retention and average order value. The Quick Commerce segment, which includes Taobao Instashopping, surged 60% year-over-year, making it Alibaba’s fastest-growing business line. The model’s integration with Alibaba’s logistics ecosystem is driving last-mile delivery cost efficiencies and reinforcing platform stickiness.

International commerce revenue rose 10%, as platforms like AliExpress and Lazada turned EBITDA-positive for the first time. Collectively, these segments accounted for nearly 68% of consolidated revenue, underscoring Alibaba’s strong foothold across domestic and international retail ecosystems.

Cloud Intelligence Group: Margin Leverage Ahead

The Cloud Intelligence Group is not only expanding revenue share but improving profitability. Despite aggressive CapEx, EBITA margins rose modestly, showing efficiency gains from AI automation. Alibaba’s 35.8% market share in China’s cloud sector now exceeds the combined share of its next three competitors. The cloud division’s trajectory closely mirrors AWS’s ramp between 2016–2018, where early AI infrastructure spending preceded multi-year margin expansion.

Alibaba’s in-house T-Head semiconductor division is also mitigating risks from U.S. export restrictions by developing proprietary AI accelerators. This self-sufficiency reduces exposure to Nvidia’s A800 export limits, positioning Alibaba as a critical infrastructure enabler in China’s AI ecosystem.

AI Integration into Commerce Ecosystem Drives Efficiency

Artificial intelligence is transforming Alibaba’s e-commerce operations beyond cloud computing. AI-driven personalization tools now account for more than 25% of Taobao’s conversions, while predictive logistics models have reduced average delivery times by 18% year-over-year. Machine learning integration has cut customer acquisition costs by 9%, while retention metrics improved for the third consecutive quarter.

The Qwen LLM stack is being embedded into merchant support tools, advertising optimization, and product categorization engines, reinforcing Alibaba’s competitive advantage against PDD Holdings (NASDAQ:PDD) and JD.com (NASDAQ:JD). This operational AI layer enhances scalability while reducing dependency on discount-led growth.

Valuation Gap vs. Global Peers Remains Wide

Alibaba trades at a forward P/E of 16.7x, versus 30x for Amazon (NASDAQ:AMZN) and 10.9x for PDD, reflecting the persistent “China discount.” Even with this compression, the stock’s forward enterprise-value-to-revenue ratio of 2.5x remains modest given its dual exposure to cloud and AI. Street consensus pegs FY2027 EPS at $9.42, implying potential valuation re-rating toward 20–25x earnings, yielding a fair value of $188–$235 per share, a 15–43% upside from current levels.

If AI-driven profitability accelerates as expected, with gross margins approaching 50% by FY2027, BABA could command 30x earnings, implying a long-term target of roughly $264 per ADR, representing 68% upside.

Capital Allocation and Insider Activity

Alibaba repurchased $253 million worth of shares in Q2 and remains committed to its ongoing buyback program. The company’s strong liquidity and positive interest income of $2.8 billion in the quarter underpin its ability to sustain capital returns despite the CapEx ramp. For insider transaction records and corporate governance disclosures, investors can track the company’s activity through Alibaba Insider Transactions.

Regulatory and Competitive Risks

The key overhangs remain geopolitical and competitive. U.S. export restrictions on AI chips limit near-term compute supply, though Alibaba’s domestic chip push may offset the risk by 2026. Beijing’s supportive policy stance reduces systemic risk but not entirely — regulatory unpredictability still weighs on global investor sentiment. Competitive intensity from ByteDance, Tencent Cloud, and PDD Holdings in AI commerce may pressure pricing power, though Alibaba’s data scale and early AI adoption remain strong defensive moats.

Earnings Revisions and Market Reaction

Despite the Q2 EPS decline, consensus revenue forecasts for FY2026 and FY2027 have been revised upward by 4–6%, signaling renewed confidence in Alibaba’s top-line trajectory. Analysts now expect the company’s cloud revenue to double by FY2028, with Qwen becoming a leading enterprise AI suite in Asia. The stock’s rebound from $157.35 to $164.26 underscores growing recognition that earnings volatility reflects reinvestment, not operational weakness.

Technical Outlook and Market Position

Technically, NYSE:BABA has reclaimed its 200-day moving average at $162.40, confirming short-term momentum. Resistance stands near $168.00, with the next breakout target at $175.50. On the downside, $158.00 serves as immediate support. A sustained close above $170 could accelerate momentum toward the $185–190 zone, in line with the company’s 12-month fair value band.

Outlook and Rating

Alibaba’s investment in AI infrastructure and proprietary semiconductors marks a structural transformation similar to AWS’s growth cycle in its early years. The Cloud Intelligence Group, growing 34% annually, will soon anchor valuation as e-commerce stabilizes. With $41 billion in cash, a rising share buyback pipeline, and margin expansion potential above 45%, the long-term story remains underappreciated.

The near-term margin compression is cyclical and deliberate, paving the way for durable operating leverage as AI deployment matures. Regulatory headwinds persist, but Alibaba’s execution in domestic AI, cloud integration, and quick commerce warrants optimism.

Verdict: Buy with Strong Bullish Bias.
Alibaba (NYSE:BABA) at $164.26 trades at a deep discount relative to its earnings power and AI positioning. With multiple expansion potential toward 25–30x FY2027 EPS, robust AI infrastructure growth, and improving e-commerce unit economics, the risk-reward profile remains strongly favorable.

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