Alibaba: Cloud and AI Growth Outweigh Near-Term Earnings Pressure, Supporting Overweight/Buy Rating

Analyst Gary Yu of Morgan Stanley maintained a Buy rating on Alibaba, reducing the price target to $180.00.

Gary Yu has given his Buy rating due to a combination of factors that, in his view, support Alibaba’s long‑term value despite near‑term earnings pressure. He expects Alicloud to sustain and even accelerate its strong growth trajectory, with revenue expanding more than 35% year over year in the near term and potentially reaching around 40% growth by fiscal 2027, underpinned by substantial ongoing capital investment and a stable profit margin profile in cloud. He also highlights Alibaba’s increasing push into consumer-facing AI applications, such as upgraded apps and new AI-enabled devices and services, which reinforce the company’s positioning as a leading AI infrastructure and solutions provider in China. Although group adjusted EBITA is set to decline meaningfully due to heavier spending on AI, wider losses in other segments, and a still-loss-making international commerce unit, Yu views these as strategic, future-oriented investments rather than structural impairments to the business model.

At the same time, Yu acknowledges that core e-commerce fundamentals have softened, with slower online retail growth across China, rising competition, and a challenging comparison base weighing on commerce revenues and margins. These headwinds have led him to cut his adjusted profit forecasts and lower his sum-of-the-parts valuation, primarily by marking down the value of the domestic e-commerce operations. However, he keeps his valuation of the cloud business unchanged and still arrives at a target price that implies meaningful upside from the current share price. Taken together, the resilience and growth potential of the cloud and AI franchises, combined with an attractive risk‑reward profile at current valuation levels, underpin his decision to reiterate an Overweight/Buy recommendation on Alibaba’s stock.

In another report released today, Jefferies also reiterated a Buy rating on the stock with a $225.00 price target.