# Alibaba Group Holding Ltd (BABA)

Sector: E-commerce & cloud computing

| Field | Value |
|---|---|
| Price | $111.37 |
| Fair value (Analysts) | $207.00 |
| Discount to fair value | 46.2% |
| Fair value uncertainty (Analysts) | High |
| Economic moat (Analysts) | Wide |
| LSEG analyst rating (1 strong buy to 5 strong sell) | 1.83 |
| Data as of | 2026-10-12 |
| Next earnings | 2026-11-24 (estimate) |

## In short

The market treats the AI spending of Alibaba as a cost, and fast Cloud growth can help, but the discount for US-China risk and the VIE structure will probably stay.

## Themes and gap

- Themes: China and geopolitics (china-geopolitics), AI spender (ai-spender), Regulation and courts (regulation-legal)
- Gap type: Will probably not close (structural)
- Why: The VIE structure, the US military-company listing and US-China tension keep a discount on Alibaba whatever its cloud business does.

## About

Alibaba runs two main businesses. The first is Chinese e-commerce, through the Taobao and Tmall marketplaces. Merchants pay Alibaba for advertising and other services to reach shoppers on these platforms. The second business is Alibaba Cloud, which rents computing power and AI tools to other companies.

## Thesis

Investors price Alibaba's AI spending as a cost that lowers profit. In the June 2026 quarter, revenue grew 9%, but net income fell 75% and non-GAAP net income fell 38%. Capital spending rose 75% to RMB 67.7 billion, and free cash flow was negative. Subsidies in the quick commerce war against Meituan and JD.com also lower e-commerce profit. The market fears that these costs will stay high and that the AI spending will not earn a good return. For the market to change its view, Alibaba Cloud external revenue growth must stay at 45% or more, AI-related product revenue must continue to grow quickly, and free cash flow must start to improve. In August 2026, Alibaba sold new shares for about HK$80 billion to pay for AI infrastructure. Founder Jack Ma, Chairman Joe Tsai and CEO Eddie Wu then bought shares. A second discount comes from US-China risk. Alibaba's US shares are ADRs, US-listed certificates that represent its shares. They depend on a variable interest entity (VIE) structure, because China limits foreign ownership of the business. On June 8, 2026, the US Department of Defense added Alibaba to its list of Chinese military companies, and Alibaba is suing to get off the list. This discount will probably stay whatever the business does. The next test is the fiscal Q2 2027 report, expected in late November 2026. It will show if Cloud and AI revenue grow faster than the spending. If this growth continues over the next two to four quarters, the market can start to give credit for the AI investment. A court decision on the military list, or a US step toward a trading ban, can change the US-China discount at any time.

## Checkpoints

- Aug 26, 2026: HK$80 billion share placement for AI completes. Status: Passed. Watch: Completion at the agreed price with proceeds used for AI infrastructure passes; a failed or repriced placement fails. Outcome: Alibaba completed the placement of 710 million new shares at HK$112.70 on August 26, 2026.
- Nov 24, 2026 (estimate): Fiscal Q2 2027 results: Cloud growth against capital spending. Status: Pending. Watch: Alibaba Cloud external revenue growth above 45% and rising AI revenue with a smaller free cash outflow pass; slower Cloud growth or a larger outflow without revenue gains fails.
- Feb 2027 (estimate): Fiscal Q3 2027 results: margins and quick-commerce losses. Status: Pending. Watch: Higher adjusted EBITA from smaller delivery subsidies and continued Cloud growth pass; falling profit again fails.

## Balance sheet

- Cash: CN¥474.5B
- Debt: CN¥266.5B
- Net cash: CN¥208.0B
- Interest cover: 6.0×
- Debt due within 12 months: CN¥30.6B
- Ratings: Moody's A1 (stable outlook), S&P A+ (stable outlook)

Alibaba has net cash, and the pressure is cash flow. In the June 2026 quarter, capital spending was RMB 67.7 billion, mostly for AI infrastructure, and free cash flow was minus RMB 44.7 billion. Cash and other treasury investments fell from RMB 520.8 billion on March 31, 2026 to RMB 474.5 billion on June 30, 2026. All debt is unsecured. On June 30, 2026, it was RMB 115.7 billion of senior notes, RMB 54.9 billion of convertible senior notes, RMB 9.3 billion of exchangeable bonds and RMB 86.6 billion of bank borrowings. Bank borrowings increased by RMB 11.0 billion in the quarter. Income from operations covered interest expense about 6 times in the June 2026 quarter. Adjusted EBITDA of RMB 39.1 billion covered it about 17 times. On August 26, 2026, Alibaba sold 710 million new shares for net proceeds of about HK$79.8 billion to pay for AI computing and data centers. It issued no new bonds after June 30, 2026. Subsidiaries and VIEs in Mainland China earn most of the cash, and China controls money that leaves the country. The parent's cash for dividends, buybacks and offshore debt depends on what it can move out. For FY2026, Alibaba declared a dividend of US$1.05 per ADS and bought back US$1.0 billion of shares. Moody's changed its outlook to stable in April 2026. The balance sheet can carry the AI spending for some time. But the cash outflows use the net cash, and new shares dilute shareholders.

As of 2026-06-30.

Sources:

- https://www.sec.gov/Archives/edgar/data/1577552/000110465926099220/tm2623667d1_ex99-1.htm
- https://www.sec.gov/Archives/edgar/data/1577552/000119312526365894/baba-ex99_1.htm
- https://www.sec.gov/Archives/edgar/data/1577552/000119312526231755/baba-20260331.htm
- https://www.sec.gov/Archives/edgar/data/0001577552/000110465926114191/tm2627183d1_ex99-1.htm
- https://cbonds.com/news/3893779/
- https://cbonds.com/news/3680821/

## Recent events

- 2026-09-22: At its Apsara Conference, CEO Eddie Wu showed the Zhenwu V900 AI chip, which goes into mass production in Q1 2027. He said that the data center capacity that Alibaba Cloud operates will be more than 20 gigawatts by 2032. Alibaba gave no new spending amount. It will open its first cloud regions in Türkiye, Finland and the Netherlands in the next 12 months. The Hong Kong shares rose 5.1% that day.
- 2026-09-11: Anthropic's September threat report said that more than 3,500 fraudulent accounts linked to Alibaba made more than 151 million exchanges with Claude from May to July 2026.
- 2026-08-26: Caixin reported that Jack Ma, Chairman Joe Tsai and CEO Eddie Wu bought Hong Kong shares worth more than HK$800 million after the share sale. Hong Kong filings show HK$202 million from Tsai and Wu. The report of Ma's purchase comes from unnamed sources.
- 2026-08-24: Alibaba released its Wan3.0 AI video model to all users, after a public test that started on August 6, 2026.
- 2026-08-23: Alibaba agreed to sell about 710 million new shares at HK$112.70 to investors outside the US, for about HK$80 billion (about $10.2 billion). All of the money goes to AI computing and data centers. The sale completed on August 26, 2026.
- 2026-08-20: Alibaba reported fiscal Q1 2027 revenue of RMB 269 billion, up 9% year over year. Alibaba Cloud external revenue grew 45%, and AI-related product revenue was RMB 12.4 billion in the quarter. Net income fell 75% and non-GAAP net income fell 38%, because of heavy AI infrastructure spending.
- 2026-08-04: Investors filed a securities class action against Alibaba and CEO Eddie Wu in New York federal court. It says Alibaba described AI and Pentagon-list risks as only possible when they had already started. The lead plaintiff deadline was October 5, 2026.
- 2026-07-20: The European Commission fined AliExpress EUR 550 million under the Digital Services Act for illegal, unsafe and fake products. AliExpress must give an action plan by October 20, 2026.
- 2026-07-05: A US federal court in San Jose temporarily stopped the ban on lobbying that came with the military list. Alibaba sued the Department of Defense in late June 2026 to get off the list.
- 2026-06-24: Bloomberg reported that Anthropic accused Alibaba of using thousands of accounts to copy capabilities from its Claude model. Alibaba ADRs fell about 7% over the next two trading days.
- 2026-06-08: The US Department of Defense added Alibaba to its 1260H list of Chinese military companies. The ADRs fell almost 4%. A US law requires a report on whether companies on this list must move to a Treasury list that stops US investors from trading their securities.
- 2026-05-13: Alibaba reported fiscal Q4 2026 results. Revenue was RMB 243.38 billion, up 3% year over year. Non-GAAP net income fell 99.7% to RMB 86 million. Alibaba had a loss from operations of RMB 848 million, its first since 2021, because of AI spending and quick commerce subsidies.
- 2026-04-17: China's market regulator fined seven platforms about RMB 3.6 billion in total, including Taobao, Tmall and Ele.me, for food safety and delivery violations during the delivery price war.
- 2026-02-13: The US Department of Defense posted an update that added Alibaba to its list of alleged Chinese military companies. It withdrew the update within hours.

## Risks

- High: Alibaba trades as a US ADR that depends on a variable interest entity structure, so ADR holders do not own the Chinese operating licenses directly. Since June 8, 2026, Alibaba is on the US Department of Defense list of Chinese military companies. A move to the Treasury list can stop US investors from trading the shares, and more US-China tension can bring other trading limits.
- Medium: Alibaba uses subsidies in quick commerce and instant retail against Meituan, JD.com and Douyin. These subsidies caused a large drop in core China e-commerce profit in FY2026. Reports in 2026 say that the price war is less intense, but Alibaba gives no end date and no separate loss figure for quick commerce.
- Medium: Alibaba plans to spend more than RMB 380 billion (about $53 billion) over three years on AI and cloud infrastructure, and it had spent about RMB 190 billion by June 2026. In May 2026, CEO Eddie Wu said that compute spending will probably be more than this amount. If Alibaba Cloud growth slows or AI demand is weak, this spending can keep group profit low without a matching revenue gain.
- Medium: In August 2026, Alibaba sold about 710 million new shares for about HK$80 billion (about $10.2 billion) to pay for AI infrastructure. The new shares are about 3.6% of all shares after the sale. This dilutes existing shareholders even if the spending pays off later.
- Low: Jack Ma has returned to public life, and he attended President Xi Jinping's meeting with private business leaders in February 2025. But the 2020-2021 antitrust crackdown and the forced restructuring of Ant Group showed that Chinese regulators can quickly take control of large tech platforms again. In April 2026, the market regulator fined Taobao, Tmall and Ele.me.
- Low: Anthropic says that Alibaba copied capabilities from its Claude models through fraudulent accounts, and a US class action says that Alibaba did not disclose risks correctly. These cases can bring legal costs and limits on access to US AI models.

## Links

- Page: https://picks.kamadorueda.com/company/BABA/
- History of changes: https://picks.kamadorueda.com/company/BABA/history/
- JSON with full history: https://picks.kamadorueda.com/data/company/BABA.json

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