Alibaba's Strategic Resilience: Navigating Ant's Headwinds to Seize Tech Dominance

Alibaba Group (NYSE: BABA) faces a pivotal moment. While its affiliate Ant Group’s Q4 net profit plunged 31% to RMB5.4 billion due to aggressive AI investments, Alibaba’s core e-commerce and cloud segments demonstrated remarkable resilience. This article argues that Alibaba’s undervalued shares, coupled with its structural advantages in tech and retail, make it a compelling buy despite near-term volatility.

Core E-Commerce: Anchored in Consumer Demand

Alibaba’s Taobao and Tmall units delivered 5% year-over-year revenue growth to RMB136.1 billion, driven by a 9% surge in customer management revenue. Strategic initiatives like the Quanzhantui tool for merchants and the 88VIP premium membership program (now boasting 49 million users) highlight a user-centric approach.

Even as direct sales declined 9%, Alibaba’s focus on high-margin services and premium memberships underscores operational discipline. The 49 million 88VIP users, up double digits year-on-year, represent a sticky, high-spending cohort insulated from macroeconomic pressures.

Cloud Intelligence: The AI-Driven Growth Engine

Alibaba Cloud’s 13% revenue growth to RMB31.7 billion marked another quarter of outperformance, with AI-related products surging over 100% year-over-year for the sixth straight quarter. The launch of Qwen2.5-VL (multi-modal) and Qwen2.5-Max (MoE-based) models in early 2025 solidified its leadership, with over 90,000 derivative models built on Hugging Face.

Adjusted EBITA for the Cloud Intelligence Group soared 33% year-over-year to RMB3.1 billion, reflecting a shift to higher-margin public cloud services. With a RMB380 billion three-year investment plan in cloud and AI infrastructure—exceeding past decade spending—Alibaba is positioning itself as the infrastructure backbone of the global AI revolution.

Balancing Ant’s Headwinds with Long-Term Gains

Ant’s profit decline, while notable, is manageable. Alibaba’s 33% stake means the impact on net income is diluted, and Ant’s AI investments align with Alibaba’s strategic priorities. The two firms are now integrated partners, with Ant’s technologies powering Alibaba’s e-commerce and financial services.

Moreover, the U.S.-China tariff suspension removes a key overhang, and Alibaba’s RMB20.7 billion remaining share buyback program signals confidence.

Tariff Risks and Competitive Pressures: Overcome, Not Defeated

While U.S.-China trade tensions persist, the tariff suspension buys Alibaba time to focus on growth. In retail, AliExpress Korea (a joint venture with Shinsegae) and Trendyol in Turkey are expanding reach. In tech, Alibaba’s Bailian platform for enterprise AI solutions is outpacing competitors like Tencent in adoption.

Valuation: A Discounted Tech Titan

At $134, Alibaba trades at 10.5x forward EV/EBITDA, below its five-year average of 13x. Analysts project a $161 price target, implying a 20% upside, while its 333% YoY net income surge to RMB46.4 billion signals operational turnaround.

Risks to Consider

• Ant’s profitability recovery timeline remains uncertain.
• Global AI competition from AWS, Microsoft, and Google could pressure margins.
• Macroeconomic softness in China could dampen e-commerce demand.

Conclusion: Buy Alibaba for the AI Decade

Alibaba’s $134 share price is a rare entry point to own a $250 billion tech giant with:
- A fortress balance sheet (RMB39 billion free cash flow, excluding cloud investments).
- AI-driven cloud growth outpacing peers.
- A resilient e-commerce engine with 49 million premium users.
- Undervalued relative to its long-term potential.

The near-term headwinds are temporary; the structural tailwinds—AI adoption, global e-commerce expansion, and Ant’s strategic synergy—are irreversible. Buy Alibaba now and hold for the AI decade.