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Alibaba Cloud's AI Boom: Can This Momentum Drive Even Higher Growth?
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Key Takeaways
{\"0\":\"BABA cloud unit surged 26% year over year, marking one of the strongest growth performances recently.\",\"1\":\"Strategic AI investments drove substantial cash outflows but position Alibaba to capitalize on AI demand.\",\"2\":\"BABA shares gained 94.2% year to date, vastly outperforming the broader Internet-Commerce industry.\"}
Alibaba's (BABA - Free Report) cloud computing unit delivered remarkable growth momentum in the first quarter of fiscal 2026, with revenues surging 26% year over year, marking one of the strongest growth performances in the division's recent history. This acceleration reflects strong enterprise adoption of Alibaba's AI models.
The robust cloud performance comes as Alibaba strategically invests in AI infrastructure, with increased CapEx in AI + Cloud infrastructure contributing to a substantial cash outflow. While this aggressive investment approach has impacted near-term cash flows, it positions the company to capitalize on the expanding AI market demand that is driving the current growth trajectory.
Central to this momentum is Alibaba's comprehensive AI model portfolio, which has recently been expanded with breakthrough innovations. In September 2025, the company open-sourced Wan2.2-Animate, a new action generation model that can drive images of people, anime characters, and animals, demonstrating practical applications in short video creation and animation production. This follows the strategic release of Tongyi DeepResearch, an agentic large language model designed for complex information tasks, further strengthening the company's AI ecosystem.
The cloud division's success stems from both technological advancement and strategic partnerships. Alibaba's collaboration with S&P Global to deliver AI-ready commodity datasets through Alibaba Cloud's Object Storage Service exemplifies how the company is creating integrated solutions that combine trusted data sources with its Qwen large language models. These partnerships enhance data accessibility while enabling faster insights for enterprise customers across multiple industries.
However, sustaining this growth trajectory faces challenges. Price reductions for AI infrastructure are investments in user acquisition and growth, suggesting margin pressure as the company prioritizes market share expansion over immediate profitability. The cloud unit's adjusted EBITA margin has shown some volatility due to these strategic investments, requiring careful balance between growth initiatives and profitability maintenance.
The company's recent AI model releases, including the ultra-efficient Qwen3-Next architecture and Qwen3-ASR-Flash multilingual speech recognition system, demonstrate continued innovation capacity. These developments, combined with enterprise demand for AI solutions, suggest the current growth momentum could extend into subsequent quarters, though execution of the company's substantial infrastructure investments will be crucial for sustaining this trajectory.
Microsoft and Amazon Lead Global Cloud AI Race
While Alibaba's 26% cloud growth demonstrates strong regional performance, global competitors maintain significant advantages in the AI infrastructure battle. Microsoft (MSFT - Free Report) Azure delivered 39% growth in recent quarters, substantially outpacing Amazon (AMZN - Free Report) -owned Amazon Web Services' 17.5% expansion, highlighting the competitive intensity surrounding AI-driven cloud services. Microsoft's Azure segment achieved $75 billion in annual revenues, while Amazon allocated $24.3 billion in quarterly capital expenditures toward AI data center infrastructure. Both Microsoft and Amazon possess deeper capital resources and established enterprise relationships compared to Alibaba's primarily Asia-focused operations. Amazon's AWS maintains overall market leadership despite slower growth rates, while Microsoft continues leveraging its Office 365 integration to drive Azure adoption globally, creating scale advantages that Alibaba must navigate in international expansion efforts.
BABA’s Share Price Performance, Valuation and Estimates
BABA shares have gained 94.2% in the year-to-date (YTD) period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 14.9% and 10%, respectively.
BABA’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, BABA stock is currently trading at a forward 12-month Price/Earnings ratio of 17.41X compared with the industry’s 25.33X.
BABA Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $8.09 per share, which has moved south by 5.7% over the past 30 days. The estimate indicates 10.21% year-over-year decline.
Image: Bigstock
Alibaba Cloud's AI Boom: Can This Momentum Drive Even Higher Growth?
Key Takeaways
Alibaba's (BABA - Free Report) cloud computing unit delivered remarkable growth momentum in the first quarter of fiscal 2026, with revenues surging 26% year over year, marking one of the strongest growth performances in the division's recent history. This acceleration reflects strong enterprise adoption of Alibaba's AI models.
The robust cloud performance comes as Alibaba strategically invests in AI infrastructure, with increased CapEx in AI + Cloud infrastructure contributing to a substantial cash outflow. While this aggressive investment approach has impacted near-term cash flows, it positions the company to capitalize on the expanding AI market demand that is driving the current growth trajectory.
Central to this momentum is Alibaba's comprehensive AI model portfolio, which has recently been expanded with breakthrough innovations. In September 2025, the company open-sourced Wan2.2-Animate, a new action generation model that can drive images of people, anime characters, and animals, demonstrating practical applications in short video creation and animation production. This follows the strategic release of Tongyi DeepResearch, an agentic large language model designed for complex information tasks, further strengthening the company's AI ecosystem.
The cloud division's success stems from both technological advancement and strategic partnerships. Alibaba's collaboration with S&P Global to deliver AI-ready commodity datasets through Alibaba Cloud's Object Storage Service exemplifies how the company is creating integrated solutions that combine trusted data sources with its Qwen large language models. These partnerships enhance data accessibility while enabling faster insights for enterprise customers across multiple industries.
However, sustaining this growth trajectory faces challenges. Price reductions for AI infrastructure are investments in user acquisition and growth, suggesting margin pressure as the company prioritizes market share expansion over immediate profitability. The cloud unit's adjusted EBITA margin has shown some volatility due to these strategic investments, requiring careful balance between growth initiatives and profitability maintenance.
The company's recent AI model releases, including the ultra-efficient Qwen3-Next architecture and Qwen3-ASR-Flash multilingual speech recognition system, demonstrate continued innovation capacity. These developments, combined with enterprise demand for AI solutions, suggest the current growth momentum could extend into subsequent quarters, though execution of the company's substantial infrastructure investments will be crucial for sustaining this trajectory.
Microsoft and Amazon Lead Global Cloud AI Race
While Alibaba's 26% cloud growth demonstrates strong regional performance, global competitors maintain significant advantages in the AI infrastructure battle. Microsoft (MSFT - Free Report) Azure delivered 39% growth in recent quarters, substantially outpacing Amazon (AMZN - Free Report) -owned Amazon Web Services' 17.5% expansion, highlighting the competitive intensity surrounding AI-driven cloud services. Microsoft's Azure segment achieved $75 billion in annual revenues, while Amazon allocated $24.3 billion in quarterly capital expenditures toward AI data center infrastructure. Both Microsoft and Amazon possess deeper capital resources and established enterprise relationships compared to Alibaba's primarily Asia-focused operations. Amazon's AWS maintains overall market leadership despite slower growth rates, while Microsoft continues leveraging its Office 365 integration to drive Azure adoption globally, creating scale advantages that Alibaba must navigate in international expansion efforts.
BABA’s Share Price Performance, Valuation and Estimates
BABA shares have gained 94.2% in the year-to-date (YTD) period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 14.9% and 10%, respectively.
BABA’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, BABA stock is currently trading at a forward 12-month Price/Earnings ratio of 17.41X compared with the industry’s 25.33X.
BABA Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $8.09 per share, which has moved south by 5.7% over the past 30 days. The estimate indicates 10.21% year-over-year decline.
Alibaba Group Holding Limited Price and Consensus
Alibaba Group Holding Limited price-consensus-chart | Alibaba Group Holding Limited Quote
Alibaba currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.