Chinese e-commerce conqueror Alibaba (BABA) will publish its fiscal Q2 2026 numbers tomorrow morning, and the good news is that the market has finally started to believe in its bullish narrative again. After years of regulatory drama and speculation about whether the Chinese giant is a value trap, the bullish momentum has returned.
TipRanks Black Friday Sale
- Claim 60% off TipRanks Premium for the data-backed insights and research tools you need to invest with confidence.
- Subscribe to TipRanks' Smart Investor Picks and see our data in action through our high-performing model portfolio - now also 60% off
Moreover, the firm is potentially on the cusp of becoming an active AI capex spender, following revelations from the previous quarter that BABA is achieving “triple-digit growth” in AI-related product revenue.
But the rally now has to earn its keep. This quarter, the market wants to know whether Alibaba is really an AI-powered compounder or just another cyclical China trade in disguise. What happens in the cloud, margins, and buybacks may go a long way toward answering that. Personally, I believe shares are still deeply undervalued, and thus maintain a Bullish outlook on Alibaba stock.
Wall Street Analysts Expect Slow Top Line with Wild EPS Base
On the surface, consensus for Q2 FY26 looks almost boring. Analysts expect revenue of roughly RMB 34.2 billion (~$5 billion), up only about 4.7% YoY. It’s fair to say that’s not the kind of growth that usually gets AI super-cycle headlines going.
Earnings-wise, it gets even messier at first glance, with consensus expecting adjusted EPS of just roughly $0.85, a steep decline from $2.12 last year. Yet, this is only due to one-off extraordinary gains recorded last year and expectations of heavy investments this time around. This is also evident in the consensus EPS estimate for next fiscal year’s Q2, which stands at $2.60, up over 200% from this year’s estimate, reflecting a more “normal conditions” scenario.
Regardless, strip away the accounting noise, and the real debate becomes whether Alibaba can maintain revenue growth while funding a very expensive pivot into AI and same-day logistics. In the upcoming report, I think there are three areas worth focusing on to gauge how well the company is managing that balance.
First, the impact of China’s ongoing deflationary pressures. Second, the increasingly intense competition from PDD (PDD) and JD (JD). And third, the scale of Alibaba’s AI capex—how heavy that spending may become, and whether it could compress margins even as the cloud business begins to reaccelerate.
BABA Transitions from E-Commerce Workhorse to AI Platform
To understand what’s at stake this quarter, it helps to rewind one step. In Q1 FY26, Alibaba reported total revenue of RMB 247.7 billion ($34.6 billion) on a like-for-like basis, excluding supermarket chain Sun Art and department store Intime (now being sold), which grew roughly 10%. Cloud Intelligence was the highlight, where revenue jumped 26% year-on-year, and AI-related product revenue has now grown at triple-digit rates for eight consecutive quarters.
On the last earnings call, management kept the message simple. The group now has two strategic pillars, domestic consumption (Taobao/Tmall, quick commerce, local services) and AI + Cloud, and virtually everything else is being slimmed down or sold to feed those two engines. Hence the disposals of Sun Art and Intime, and hence the burst of balance-sheet moves to finance infrastructure.
Indeed, those moves have been quite sizable. Over the past year, Alibaba has announced planned AI and cloud infrastructure investments totaling over $53 billion, spread across several years. In July, for instance, Alibaba raised $1.5 billion via exchangeable bonds linked to Alibaba Health (ALBHF), earmarked for cloud data centres and international commerce expansion. More recently, in September, it followed up with a $3.2 billion zero-coupon convertible bond, again with about 80% of the proceeds directed to cloud and AI build-out.
On the commerce side, BABA has quietly been trying to reinvent its speed capacities. Earlier this month, Alibaba committed $281 million to roll out 30-minute delivery via Taobao-branded convenience stores across 200 Chinese cities. Management argues that it will deepen engagement and defend share against PDD’s Temu-style discounting we’ve seen dominate the space. The trade-off, and this is crucial for Q2, is that subsidies and logistics spending are pushing adjusted EBITA down, even as gross merchandise value improves.
A Hot Stock That Still Screens Cheap
Now, the slightly awkward thing for anyone just discovering the story now is that Alibaba’s share price has already run hard. Shares are up about 83% year-to-date, and so it’s reasonable for one to argue that the easy money on the stock has already been made.
Yet on a forward-earnings basis, the stock still looks oddly modest. Alibaba’s forward P/E hovers around 22x, which I find modest given that EPS is set to spike after tough comps and this year’s high investments rotate out. Specifically, consensus sees EPS growth of 36% and 22% over the next two fiscal years, which would let the P/E slide to 13x by fiscal 2028.
In that sense, I believe that Alibaba stock remains discounted. Management seems to agree. Last year, Alibaba repurchased $11.9 billion of stock, reducing its shares outstanding by 5.1%. As of the end of September, the board still had $19.1 billion in authorization, valid through March 2027. I believe the company will continue to repurchase shares heavily even at these levels, which should remain highly accretive to EPS growth over the run.
Is Alibaba a Good Stock to Buy Now?
BABA currently holds a Strong Buy consensus on Wall Street, based on the view of 21 analysts. Specifically, BABA stock now carries 19 Buy and two Hold ratings. No analyst rates the stock a sell. At $198.21, the average Alibaba stock price forecast implies almost 30% upside potential over the next 12 months.
Alibaba’s Pivotal Earnings Test
Alibaba’s upcoming earnings report on Tuesday will serve as a critical gauge of whether its ongoing AI-cloud transformation can meaningfully offset China’s broader macroeconomic pressures and intensifying competitive landscape. While the stock has enjoyed a notable rebound in recent weeks, the current valuation—combined with the company’s steady share-repurchase program—continues to provide a solid foundation for sustained bullish momentum.
Looking ahead, if Alibaba maintains disciplined execution across its strategic initiatives, the company appears well-positioned to deliver robust, compounding earnings growth. In my view, this strengthens the case for a constructive long-term outlook, even as near-term uncertainties remain.