Alibaba’s (BABA) latest quarterly results, published last week, underscored how the market is rewarding firms prioritizing AI-driven growth. At first glance, both revenue and earnings may have seemed underwhelming—but Alibaba’s bold push into AI, especially within its cloud division, changed the narrative. Alibaba Cloud emerged as the clear highlight, and the stock’s double-digit post-earnings surge was mainly driven by strength in this segment.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
As Alibaba’s growth story adapts to a Chinese economy no longer experiencing the same explosive expansion—a trend that may persist in the coming years—the traditional value thesis takes a back seat. Even so, when adjusting for growth, BABA’s seemingly cheap multiples don’t look so cheap—sometimes even higher than its U.S. peers. While the stock still warrants a Buy rating, thanks to its strong momentum and positioning to capitalize on secular AI tailwinds, a degree of caution is still warranted.
Underwhelming Numbers with an Overwhelming Reaction
At first glance, Alibaba’s latest quarterly results (June quarter) looked underwhelming. The Chinese e-commerce giant posted a mixed bag—beating EPS by 8 cents but missing revenue estimates by $862.3 million, or 2.5% below consensus.
According to TipRanks data, revenue grew just 2% year-over-year, a slowdown from 4% growth in the same period last year. Meanwhile, operating income fell 3% year-over-year, dragged by a 14% drop in adjusted EBITA, reflecting margin pressure in e-commerce as well as heavy investment in international expansion and AI.
Net income attributable to shareholders jumped 76% year-over-year, but this was mostly mark-to-market gains from equity investments—not sustainable operating profits. Meanwhile, operating cash flow fell 39%, flipping free cash flow negative—definitely not what investors would expect from an industry leader. The free cash flow squeeze also meant buybacks slowed sharply. Alibaba spent just $800 million on repurchases in Q2 2025, compared to $5.8 billion in the same quarter last year.
On the other hand, capital expenditure, such as plant and equipment purchases, spiked 223% compared to the previous quarter, emphasizing Alibaba’s bet on its cloud business.
The Growth Shift Behind Alibaba’s Rally
And that’s where the real bright spot was: cloud revenues climbed 26% year-over-year, with AI-related products delivering triple-digit growth for the eighth straight quarter—even though cloud still makes up only 13.4% of total revenue.
Despite a recent earnings miss, pressure on operating metrics, and several key fundamentals flashing weakness, Alibaba’s stock actually jumped by double digits after the release.
In short, the market chose to see Alibaba as a growth story, not a value story. With the AI boom clearly dividing the winners (those pouring billions into cloud and foundational model infrastructure) from the losers (those underinvesting), investors seemed comfortable with Alibaba’s heavy spending. For now, value-investing staples like consistent profits, free cash flow, or buybacks are taking a back seat—as long as the AI-driven growth narrative holds.
Management doubled down on that narrative, explicitly stating it will prioritize growth over profits. The timing isn’t random, given AliCloud’s growth trajectory has accelerated over the last ten quarters, with a real inflection in the past four—culminating in 26% year-over-year growth this quarter, after years of low-single-digit expansion.
Looking ahead, Alibaba sees itself cementing its role as the leading cloud player in China, where it already holds the highest market concentration and where developers increasingly demand complete, full-stack solutions—unlike the U.S., which is dominated by AWS (AMZN), Microsoft Azure (MSFT), and Google Cloud (GOOGL). To that end, Alibaba said it plans to pour about $53 billion in capex over the next three years to expand cloud infrastructure and support new use cases. And really, there’s no better way to cheer up investors these days than by ramping up AI-focused expenditure.
Alibaba’s Discount in a Slower China
As Alibaba remains more than 55% below its historic peak from October 2020, much of this discount can be traced to China’s GDP slowdown from the explosive growth of the past decade. Since 2019, the country hasn’t managed to grow its economy above 6%—with the exception of the post-pandemic rebound in 2021 at 8.6%—slowing to 3.1% in 2022, 5% in 2024, and with projections of 4.8% for 2025.
Naturally, analysts have had to recalibrate their long-term growth models to reflect this “new normal” of more moderate expansion, given that Alibaba’s revenue is still largely dependent on the pace of China’s economy. Against that backdrop, the signs that AI could reignite Alibaba’s growth narrative are more than welcome for a stock that has long been stuck in the value-investing bucket and overlooked by many global investors due to geopolitical risk.
That said, even with growth back on the table, Alibaba doesn’t look cheap through a growth lens. Profitability is likely to take a hit over the next few years as AI-related investments accumulate, and the company’s long-term EPS CAGR (over the next three to five years) is estimated at just 8.4%. With a forward P/E of 15.3x—about 5% below the sector average—Alibaba’s price to earnings growth (PEG) ratio stands at 2.07. For comparison, Amazon trades at a PEG ratio of 1.94, despite having less geopolitical risk and a more entrenched position in both cloud computing and AI infrastructure.
Is BABA a Good Buy Right Now?
Analyst sentiment on Alibaba stock is overwhelmingly bullish, with 14 of 15 analysts rating the stock a Buy, with only one Hold. BABA’s average stock price target of $159.92 implies roughly 18% upside from current levels.
Alibaba’s AI-Driven Comeback Set to Continue
In today’s AI-driven era of technological disruption, markets are rewarding companies that play offense—prioritizing growth through heavy capital expenditures—while temporarily sidelining traditional value metrics, such as profits, free cash flow, and buybacks. With the macro backdrop supported by a dovish Fed, risk assets remain comfortably at elevated multiples.
Alibaba’s valuation isn’t especially stretched, given the unique risks it faces compared to U.S. peers. Still, with the narrative shifting decisively toward growth, the relative appeal of its multiples is somewhat muted. That said, continued investment in AliCloud should maintain investor focus and could fuel a “Amazon-like” trading momentum over the next 6–12 months. Against this setup, I view Alibaba as a cautious Buy.