BABA Stock: The Conflicting Signals and What the Data Really Says
Alibaba's AI Bet: Is Cloud Growth Enough to Outrun E-Commerce Weakness?
Cloud Nine or Cloudy Outlook?
Alibaba's stock (BABA) has seen a significant rebound this year, fueled by renewed confidence in China tech and stabilization in its core shopping business. We're talking about an 82% jump over the past year, and nearly 90% year-to-date. Bank of America's analyst Joyce Ju maintains a "Buy" rating, but trimmed the price target to $188 from $200, citing softer near-term e-commerce growth. The question is, can Alibaba's cloud growth offset this weakness, or is it just a temporary sugar rush?
The Q2 FY26 earnings paint a mixed picture. Revenue hit 247.8 billion yuan ($34.8 billion), exceeding expectations with a 5% year-over-year increase. However, adjusted diluted EPS landed at 4.36 yuan, missing the 6.34 yuan consensus. Cash flow also took a hit, as Alibaba ramped up spending on AI, cloud infrastructure, and quick commerce initiatives. These are the kind of discrepancies that make you dig deeper.
Ju highlights the strong momentum in Alibaba’s cloud business and improving trends in quick commerce losses as potential earnings drivers. Cloud revenue surged 34% year-over-year to 39.8 billion yuan ($5.6 billion), surpassing estimates of 38 billion yuan. The AI component is particularly noteworthy, with triple-digit growth for nine straight quarters, now accounting for over 20% of cloud revenue. This growth is fueled by both enterprise clients leveraging Alibaba’s AI tools and the company’s internal AI workloads. But here's the rub: Is this AI-driven cloud growth sustainable, or is it inflated by short-term hype?
On the quick commerce front, losses are indeed narrowing. The division reported a 36–37 billion yuan loss, which, surprisingly, was better than anticipated. Loss per order has shrunk to about 5 yuan. Management projects losses to halve, with improvements already visible in October. Ju anticipates losses to drop to around 20 billion yuan next quarter, potentially boosting margins. I've looked at hundreds of these filings, and this particular segment is unusual; it is not often that a company is praised for losing less money.
However, the e-commerce side presents a different story. Ju anticipates softer performance in the December quarter, particularly in customer management revenue (CMR), which includes merchant ads and fees. The earlier pricing benefits are fading, leading to reduced earnings forecasts by 7% to 20% through FY28. This isn't necessarily a long-term red flag, as user traffic and engagement on Alibaba platforms are still improving. But, it prompts the question: Are these users converting into paying customers, or are they just window-shopping?
The Qwen Factor: A Potential Game Changer?
Alibaba's newly revamped Qwen app has garnered significant attention, crossing 10 million downloads in its first week. After the company disclosed the milestone, its Hong Kong–listed shares climbed more than 5%. During its second day of beta testing, Qwen quickly climbed into the top five free apps on Apple Inc.'s App Store in mainland China and Hong Kong. Analysts suggest this could position Alibaba to build China's answer to WeChat for the AI era. Alibaba's New Qwen App Smashes 10 Million Downloads In A Week — And Sends Its Stock Soaring: Analysts See Clear Path To China's Next AI-Era WeChat - Alibaba Gr Hldgs (NYSE:BABA), Apple (NASDAQ:AAPL)
The question is, can Qwen truly become the "WeChat of AI?" It's a bold claim. The app's rapid adoption is undoubtedly impressive, but converting downloads into a sustainable revenue stream is a different ballgame. Qwen faces stiff competition from low-cost challengers like DeepSeek, whose aggressive pricing is triggering an industrywide cost battle.
A Calculated Gamble, Not a Sure Thing
Alibaba's AI bet is a calculated gamble, not a guaranteed win. The cloud business is showing promise, but the e-commerce weakness is a significant headwind. Qwen's potential is intriguing, but the competitive landscape is fierce. The stock's recent surge reflects optimism, but investors should proceed with caution. The data suggests a company in transition, not a runaway success story.