AI Boom at Alibaba: Will Product Momentum Meet Strategic Visibility?

Alibaba BABA is redefining AI innovation with its seventh consecutive quarter of triple-digit growth in AI-related product revenues. This surge is powered by innovations such as the Lingma AI coding assistant and the newly launched Qwen3 models, signaling strong momentum toward the company’s strategic AI ambitions. This momentum pushed Cloud Intelligence Group revenues up 18% year over year in the fourth quarter of fiscal 2025, reinforcing Alibaba’s leadership in next-gen AI solutions.

Alibaba plans to invest RMB 380 billion ($53 billion) over the next three years in AI and cloud infrastructure, exceeding its total AI investment over the past decade. These funds will target critical areas like chips, servers, data centers and advanced AI technologies, reinforcing the backbone of its cloud business.

With full open-sourcing in ModelScope and Hugging Face, Qwen3 has become a favorite among developers, contributing over 300 million downloads and 100,000 derivative models worldwide. This strategy aims to accelerate innovation in industries including retail, manufacturing and media.

However, significant challenges remain. In China, resistance to paid AI subscriptions has forced Alibaba to slash API pricing by as much as 97%, limiting monetization potential despite soaring usage. Furthermore, intensifying competition from open-source rivals and global cloud giants continues to erode pricing power in the enterprise API market. These dynamics raise concerns about profitability and the ability to sustain heavy infrastructure investments amid margin pressure.

Despite these headwinds, Alibaba’s AI product momentum reflects a clear strategic vision, but the question remains whether this growth can be translated into long-term success in an increasingly competitive AI landscape.

Alibaba’s Key Competitors in the AI Domain

Microsoft MSFT stands as a leading competitor to Alibaba in AI through its Azure platform. Microsoft Azure has rallied with 39% growth and $75 billion in revenues, outperforming Alibaba Cloud in service and support. Backed by massive R&D spending, Microsoft is set to outpace Chinese peers in AI infrastructure. With enterprise trust, global partnerships, such as a new AI-powered Azure region in Kuwait, and diversified revenue streams, Microsoft maintains a decisive edge over Alibaba in cloud and AI.

Amazon AMZN, through Amazon Web Services (AWS), remains Alibaba’s strongest rival in AI and cloud. AWS is investing billions, including a $5 billion Taiwan expansion, to strengthen its Asia-Pacific presence. With unmatched scale, capital resources and enterprise integration, AWS offers global reach and AI momentum far beyond Alibaba’s regional focus. While Alibaba emphasizes open-source and localized services, Amazon’s diversification, infrastructure depth and innovation make AWS a dominant force and a long-term competitive threat to Alibaba Cloud.

BABA’s Share Price Performance, Valuation & Estimates

BABA shares have gained 43.9% in the year-to-date period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 12.6% and 8.2%, respectively.

BABA’s YTD Price Performance

From a valuation standpoint, BABA stock is currently trading at a forward 12-month Price/Earnings ratio of 13.2X compared with the industry’s 25.39X. BABA has a Value Score of C.

BABA’s Valuation

The Zacks Consensus Estimate for the full-year fiscal 2026 earnings is pegged at $8.58 per share, which remains unchanged over the past 30 days, indicating a 4.77% year-over-year decline.

Alibaba currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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