Cloud Intelligence Drives Alibaba's Growth: Can It Keep the Lead?

Alibaba BABA is riding a powerful wave of growth in its Cloud Intelligence segment. In first-quarter fiscal 2026, this unit emerged as the company’s fastest-growing business, rising 26% year over year to RMB 33.4 billion ($4.66 billion). Notably, AI-driven product revenues posted triple-digit growth for the eighth consecutive quarter, highlighting the strong demand for generative AI and cloud-based solutions.

This momentum stems from aggressive investments and innovation. Alibaba plans to deploy RMB 380 billion ($52 billion) over the next three years to expand AI infrastructure, build new data centers and develop proprietary inference chips to reduce dependence on U.S. suppliers. Its Qwen3 AI models, including reasoning and coding models, are gaining global recognition. Strategic partnerships, such as the SAP collaboration, further boost prospects.

CapEx reached RMB 38.7 billion this quarter, pushing cumulative AI and cloud investments past RMB 100 billion in the last year. These efforts are paying off, as Alibaba Cloud returns to rapid growth driven by AI adoption across industries.

Yet, sustaining this growth poses challenges. The strong momentum comes with infrastructure investments, straining cash flow and making operations more complex. Building AI services requires significant spending on data centers, computing power and talent, while integrating new AI systems with legacy systems can cause disruptions. Rapid technological shifts further risk rendering current investments obsolete in short order. On top of that, global and local rivals are cutting prices, squeezing margins and delaying returns.

If Alibaba can manage these challenges by controlling costs, boosting monetization and staying ahead in technology, it can keep growing and remain a leader in the AI-driven cloud market.

Top Competitors Challenging Alibaba Cloud

Microsoft MSFT, through its Azure platform, is a dominant competitor to Alibaba in cloud and AI. Microsoft has achieved 39% growth and $75 billion in revenues, far exceeding Alibaba Cloud’s scale and reach. Microsoft Azure’s integration with Office 365, Windows Server and Azure AD ensures seamless adoption and enterprise security. Backed by global partnerships, a new AI-powered region in Kuwait and an $80 billion investment in AI and data centers, Microsoft strengthens its decisive competitive edge over Alibaba in innovation and infrastructure.

Amazon AMZN, through Amazon Web Services (AWS), is Alibaba’s toughest competitor in cloud and AI. Amazon is investing billions, including $5 billion in Taiwan, to expand its Asia-Pacific presence. With unmatched scale, capital strength and enterprise integration, Amazon outpaces Alibaba’s regional focus. While Alibaba leans on localized services, AWS’ diversification, infrastructure depth and innovation secure its dominance. Strategic expansions across APAC, combined with global reach and rapid AI momentum, reinforce Amazon’s long-term edge over Alibaba Cloud worldwide.

BABA’s Share Price Performance, Valuation & Estimates

BABA shares have surged 64.4% in the year-to-date period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 13.2% and 8.6%, respectively.

BABA’s YTD Price Performance

From a valuation standpoint, BABA stock is currently trading at a forward 12-month Price/Earnings ratio of 14.3X compared with the industry’s 24.9X. BABA has a Value Score of D.

BABA’s Valuation

The Zacks Consensus Estimate for the full-year fiscal 2026 earnings is pegged at $8.58 per share, unchanged in the past 30 days but down 15.4% over the last 60 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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