Alibaba group: The Alphabet of China

Most AI contenders own one or two pieces of the puzzle. Alibaba owns nearly all of them: foundation models (the Qwen family), the cloud that runs them, the applications they power, and increasingly the chips underneath. Its T-Head chip subsidiary has brought a proprietary GPU into production at scale, supporting AI workloads from training through to inference. On the earnings call, Wu argued that being the only AI cloud provider in China able to deploy self-developed chips at scale gives it control over its compute supply in a market where computing power is scarce. That vertical integration is the heart of the bull case.

For years Alibaba Cloud was a slow-growing also-ran. AI demand has changed that. External cloud revenue accelerated to 40% growth, with AI products now nearly a third of cloud sales, and management expects growth to keep accelerating beyond that rate. The economics matter as much as the headline: cloud profit (adjusted EBITA) still rose 35% in the full year even amid heavy investment, and management guides cloud margins to improve meaningfully over the next two to three years as AI workloads scale. A flywheel is forming, where wider Qwen adoption drives more cloud consumption, which funds more AI development.

Alibaba can fund its AI ambitions and keep returning cash without raising a cent externally. Net cash stood at roughly US$38bn at March 2026, or about US$58bn excluding longer-dated debt, against a multi-year AI and cloud investment plan of around US$53–56bn. The board also declared an annual dividend of US$1.05 per ADS, about US$2.5bn in total, on top of buybacks management says reflect an undervalued stock. Few AI challengers anywhere can spend this aggressively and pay shareholders at the same time.

• Cloud monetisation inflecting. Alibaba raised some cloud prices and guides margins to improve over two to three years; clearer evidence of that flowing through would reassure the market.

• Margin trajectory. Any sign that group profitability has bottomed, after the sharp investment-driven squeeze, would shift the near-term narrative.

• Model-as-a-Service scaling. Alibaba's Model Studio platform grew its customer base eightfold year-on-year; converting that into recurring revenue is the proof point bulls want.

• Physical AI and chips. Progress on robotics foundation models and self-developed chips could open new markets and reduce reliance on foreign hardware.

• The US$100bn cloud ambition. Management targets more than US$100bn in annual external cloud and AI revenue within five years; delivery would reframe the whole business.
  

• Value crystallisation. A possible Ant Group listing or valuation reset could unlock trapped value for shareholders, and any thaw in US-China relations would be a re-rating trigger.

Alibaba is a US-listed Chinese company in the middle of a widening tech standoff. Tighter US export controls on advanced AI chips could limit its ability to scale the GPU infrastructure its AI plan depends on, and Washington has taken hostile actions toward Chinese tech names. The risk is close to binary: if relations stabilise, the geopolitical discount can narrow; if they worsen, the shares can fall on policy headlines alone, no matter how the business performs. This overhang sits outside management's control.

The investment is real, and so is the cost. Group adjusted profit (EBITA) fell about 84% year-on-year in the March quarter as the margin shrank to just 2%, driven by spending on AI, quick commerce and user experience. Free cash flow swung to an outflow of roughly RMB47bn for the full year, against a large inflow the year before. Management has not signalled when the investment cycle peaks, so if cloud monetisation lags or open-source Qwen drives usage without paying revenue, earnings could disappoint longer than investors will tolerate.

Alibaba's foundation is still Chinese e-commerce, and that base is under pressure. March-quarter revenue rose just 3% and fell short of expectations, while a price war in instant delivery against rivals like Meituan and JD is squeezing margins. Subdued consumer confidence, a weaker renminbi and the property downturn all weigh on spending. Beijing has shifted from crackdown to support, but policy can reverse quickly, and the legal structure underpinning the US-listed shares carries its own latent risk.