Alibaba's AI Business Boosts Revenue Growth: Buy or Sell?

Alibaba is reporting significant growth in its AI business, leading to accelerating revenue growth. The company's stock price has increased as a result.

Alibaba Group Holding Ltd. (NYSE: BABA), the Chinese technology giant, has reported substantial growth in its artificial intelligence (AI) business, leading to accelerating revenue growth. The company's stock price has seen an upward trend as a result of this strong performance.

According to recent financial reports, Alibaba's AI capabilities have positioned it as a leading AI enabler and adopter in the Asia Pacific region. The company's dual role in AI, both as a provider through its cloud services, AliCloud, and an adopter in its e-commerce applications, has garnered positive attention from analysts. Bernstein, in a February 2025 report, upgraded Alibaba to "Outperform" from "Market-Perform," citing optimism surrounding the company’s AI capabilities and strategic capital allocation towards AI infrastructure [2].

The company's cloud business, AliCloud, has become a focal point for investors and analysts alike. Morgan Stanley, in its May 2025 analysis, highlighted the surging demand for AI cloud services as a key driver for AliCloud’s growth acceleration. This trend is expected to continue, with projections suggesting revenue growth of 25-30% by the fiscal year ending March 2026 [2].

Despite the positive outlook on Alibaba’s AI-driven growth, the company faces several challenges. Barclays’ July 2025 analysis highlighted substantial losses in the food delivery sector, with expectations of over 10 billion RMB for the June Quarter and over 20 billion RMB for the September Quarter. However, analysts view these losses as likely transitory and consider instant commerce critical to Alibaba’s long-term strategy [2].

Alibaba is also making strategic moves in the quick commerce market with its "Shanguo" service. Analysts estimate that this market could reach Rmb2tn (US$267bn) by 2030, presenting a significant opportunity for Alibaba to leverage its existing platforms like Taobao and Eleme to enhance offerings without compromising profitability [2].

The company maintains healthy profitability metrics with a P/E ratio of 15.24 and projected EPS of $10.19 for FY2026. However, margin pressures due to ongoing investments in AI infrastructure and business development remain a concern. Bernstein’s February 2025 report noted high depreciation costs associated with AI infrastructure investments as a potential headwind [2].

In conclusion, Alibaba's significant growth in its AI business has driven accelerating revenue growth, leading to an upward trend in the company's stock price. While the company faces challenges in certain areas, its strategic focus on AI and cloud services positions it well for future growth.

References:
[1] https://www.investing.com/news/swot-analysis/alibabas-swot-analysis-ai-prowess-drives-stock-outlook-amid-challenges-93CH-4140531
[2] https://www.investing.com/news/swot-analysis/alibabas-swot-analysis-ai-prowess-drives-stock-outlook-amid-challenges-93CH-4140531