Alibaba Q3 Earnings Preview: AI Growth, Apple Partnership, and Market Expectations

Alibaba Group (BABA) is set to report its highly anticipated quarterly earnings on Thursday before the market opens, with analysts expecting earnings per share (EPS) of $2.69 and revenue of $38.45 billion. This comes amid a strong rally in Alibaba shares, which have surged nearly 50% year-to-date, driven by enthusiasm over its artificial intelligence (AI) initiatives, a newly announced partnership with Apple, and a shift in sentiment following co-founder Jack Ma’s recent meeting with Chinese President Xi Jinping.

A key area to watch in the earnings report is Alibaba’s cloud segment, particularly its advancements in AI, including its collaboration with DeepSeek and its proprietary AI model, Qwen 2.5-Max. Analysts believe Alibaba’s AI developments could play a major role in its long-term growth trajectory. Additionally, the partnership with Apple to integrate Alibaba’s AI capabilities into iPhone features in China could provide a significant boost to its cloud and AI businesses. These initiatives have positioned Alibaba as a leading player in China’s AI infrastructure, but execution will be critical in determining long-term market adoption.

Despite the recent stock rally, Alibaba remains relatively undervalued compared to peers like Amazon and Sea Limited. Its forward P/E ratio of 10.90 is well below the industry average of 32.41, indicating potential upside if it continues to deliver strong results. Additionally, Alibaba’s price-to-sales (P/S) and price-to-book (P/B) ratios remain attractive relative to competitors, reinforcing the case that the stock is cheap compared to its long-term growth potential. However, given the sharp rise in share price, investors will be looking for strong guidance and performance to sustain recent gains.

Alibaba’s e-commerce business remains its core revenue driver, and analysts will be watching whether it can maintain its market share amid growing competition from PDD Holdings and JD.com. Additionally, management’s commentary on international expansion, particularly through its integration of domestic Taobao and Tmall with its global marketplace, will be key. Growth in its advertising and logistics businesses will also be critical indicators of future profitability, as these high-margin segments have been a major focus for the company.

On the macroeconomic front, Alibaba has faced challenges due to China’s uneven economic recovery, regulatory scrutiny, and geopolitical tensions. However, recent policy shifts by the Chinese government, including efforts to restore private sector confidence, could provide a tailwind. The presence of Jack Ma at a recent symposium with Xi has fueled speculation that regulatory pressures may ease, potentially benefiting Alibaba and other Chinese tech giants. Investors will closely monitor management’s tone regarding regulatory concerns and government support for tech sector growth.

Looking ahead, Alibaba’s results will be a key test of whether the company can sustain its strong rally and reassure investors about its growth trajectory. The market will be looking for positive guidance on AI monetization, e-commerce stability, and margin expansion in its cloud business. With options traders pricing in significant volatility, Alibaba’s stock reaction post-earnings will largely depend on whether the company meets or exceeds expectations in these critical areas. If Alibaba delivers on AI momentum and continued business expansion, it could reinforce bullish sentiment and push shares higher.