Will Alibaba's Rising CapEx Pressure Weigh on Free Cash Flow Ahead?

Alibaba's BABA aggressive pursuit of long-term growth is putting pressure on its near-term financials. In the first quarter of fiscal 2026, the company’s free cash flow turned negative at RMB 18.8 billion against a positive inflow a year earlier, as capital expenditure surged to RMB 38.7 billion. The rise reflects two capital-intensive priorities, including scaling AI and cloud infrastructure, and expanding Taobao Instant Commerce, its rapidly growing quick-commerce platform. Management reiterated a three-year RMB 380 billion ($53 billion) AI and cloud investment plan, indicating continued near-term pressure on the free cash flow.

At the Apsara 2025 Conference, the company announced plans to raise AI spending even beyond the initial budget of $53 billion, underscoring its conviction that AI represents a “generational opportunity.” Alibaba Cloud also unveiled an ambitious global expansion roadmap, including new data centers in Brazil, France and the Netherlands, with additions in Mexico, Japan, South Korea and Dubai over the coming year.

These investments are expected to support long-term growth, with Zacks forecasting revenue gains of 4.7% in fiscal 2026 and 11.3% in fiscal 2027.

However, intensifying competition from Pinduoduo, ByteDance and Huawei Cloud is keeping investment levels elevated. Despite leading China’s AI cloud market with a 35.8% share, Alibaba must continue spending heavily to defend its position amid rapid innovation and price competition.

As high capital expenditure continue before monetization gains are fully realized, Alibaba’s free cash flow is expected to stay under pressure in the coming quarters, reflecting the impacts of sustained heavy investment.

Capex Clash: Alibaba Battles Global Giants

Amazon AMZN is ramping up its capital expenditure beyond $118 billion in 2025, underscoring its ambition to dominate global AI and cloud infrastructure. Amazon’s massive spending, focused on AWS data centers and AI-driven infrastructure, marks an aggressive bid to outpace rivals. Despite potential margin pressure and rising debt, Amazon’s sustained capex reflects its determination to maintain leadership in both e-commerce logistics and hyperscale cloud computing worldwide.

Microsoft Corporation MSFT is accelerating its infrastructure expansion with more than $80 billion in planned capex for 2025, primarily targeting AI-driven data centers and Azure cloud growth. Microsoft recently pledged $30 billion to boost its U.K. AI infrastructure through 2028, reinforcing global leadership. With above 400 data centers in 70 regions, Microsoft's sustained investment further clarifies its strategy to dominate the AI and cloud landscape.

BABA’s Share Price Performance, Valuation & Estimates

BABA shares have surged 96.6% in the year-to-date period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 6.8% and 5.8%, respectively.

BABA’s YTD Price Performance

From a valuation standpoint, the BABA stock is currently trading at a forward 12-month price/earnings ratio of 19.74X compared with the industry’s 24.51X. BABA has a Value Score of D.

BABA’s Valuation

The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $6.57 per share, down 14.9% over the past 30 days, implying a 27.08% year-over-year decline.

Alibaba currently has 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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