Despite the investor meeting held following Alibaba's earnings reinforcing its long-term investment narrative, J.P. Morgan believes the company's share price will remain constrained in the near term by the pace of profit realization. The firm maintains its "Overweight" rating on both the US-listed and Hong Kong-listed shares of Alibaba, with a price target of $205 for the US shares and HK$200 for the Hong Kong shares.
A research report published by J.P. Morgan on March 24 noted that the meeting helped clarify why management is willing to tolerate short-term profit pressure and why they believe current investments will generate significant medium-term value. However, the firm did not emerge more confident about a substantial near-term valuation re-rating. J.P. Morgan believes that over the next three months, Alibaba's stock price will primarily trend sideways, unless subsequent data more clearly indicates improving business momentum and that investment intensity is becoming more manageable.
The current market environment tends to reward profit delivery more than long-term strategic choices. J.P. Morgan stated that the meeting itself is insufficient to drive a sharp valuation upgrade. However, the company's long-term value story remains intact, and the option value embedded in its valuation is currently underestimated by the market.
**AI & Cloud Business: Clear Strategic Focus, Monetization Visibility Awaits Improvement** Management explicitly stated during the meeting that AI and cloud computing are the top priorities on Alibaba's strategic agenda and represent the company's most significant long-term investment areas. This communication aims to address market concerns about whether spending on local services or quick commerce is diverting resources and strategic attention from the AI and cloud business.
Regarding monetization, management indicated that Alibaba is already monetizing AI demand, but most of this monetization is currently included within broader cloud business revenues and has not been disclosed separately as standalone AI income. Enterprise customers utilizing AI workloads typically access infrastructure, computing power, and related services through standard cloud frameworks. Management anticipates that AI monetization will gradually become more visible as customer usage increases and pricing models evolve.
J.P. Morgan views this as the most critical takeaway from the meeting. Alibaba's management wants investors to perceive the cloud business as a broader AI stack, with expanding monetization potential through model services, token consumption, and application layer usage, rather than merely positioning it as a traditional infrastructure business. While this framework is constructive for the medium term, the market requires clearer evidence—including sustained cloud business acceleration, improved AI monetization visibility, and confirmation that increased investment will not structurally pressure margins beyond expectations—before assigning significantly higher valuation multiples.
**AI Full-Value-Chain Strategy: Open Source for User Acquisition, Ecosystem Synergy for Monetization** Management's positioning of Alibaba's role in AI extends far beyond foundational models. The company sees itself as broadly engaged across infrastructure, cloud hosting, model platforms, enterprise deployment tools, and commercialization. Platform tools like Bailian serve as crucial bridges connecting model capabilities with practical enterprise applications.
Management's approach to open-source strategy is pragmatic: the core value of open-source models lies in boosting influence, attracting developers, and expanding the user base. The commercial logic focuses more on funneling users into Alibaba's full-stack ecosystem, subsequently monetizing through managed services, enterprise-grade tools, and cloud services, rather than treating open source as a direct profit center.
Notably, management emphasized that third-party AI model companies should not be viewed simply as competitive threats. Many of these players still require cloud infrastructure, training and inference capabilities, and access to enterprise customers, areas where Alibaba can collaborate as a cloud service provider, platform enabler, or distribution partner. Management also noted that AI-related demand is expanding from a few large internet companies to a broader range of industry and enterprise customers. Clients are transitioning from experimentation to more routine, deeply embedded business usage, which is crucial for generating sustained cloud and AI revenue.
Furthermore, management stated that the operating environment for Alibaba Cloud is no longer solely scale-oriented, with pricing discipline gradually taking hold. Price adjustments will be implemented methodically through renewals and new contracts rather than abruptly or across the board.
**Quick Commerce Business: Ecosystem Value Underestimated, Path to Profitability Unclear** Management spent considerable time explaining that the instant retail business should not be evaluated solely through the lens of short-term losses. The business is positioned as a strategic tool to increase user frequency, enhance engagement, expand category coverage, and strengthen the user ecosystem. Its investment rationale is partly derived from ecosystem synergies, not from pursuing profitability of the standalone business.
J.P. Morgan believes this strategic positioning is logically sound and potentially underestimated by the market. If management's assessment is correct, the current losses in quick commerce are actually helping Alibaba solidify the moat around its core commerce business, rather than simply expanding low-quality GMV.
The challenge, however, is that this remains a medium-term equity story, while the stock is currently trading on short-term earnings adjustments. Management expressed more confidence in the underlying operational logic for eventual improvement than in providing specific short-term timelines. Their focus is on building scale, increasing order density, and optimizing category mix, rather than cutting investment to artificially boost near-term margins. J.P. Morgan pointed out that investors will continue to monitor three key issues: the pace of improvement in unit economics, the sustainability of user growth, and when ecosystem value will become more apparent in the reported financials.
**Market Pricing Overlooks Option Value of Cloud and Quick Commerce** J.P. Morgan noted that the current market prices Alibaba as if its valuation is based solely on the profits of its domestic commerce business. The firm estimates that the current valuation approximates 10 times J.P. Morgan's forecasted FY2027 domestic commerce profit of RMB 196 billion, while assigning zero residual valuation to the Cloud Intelligence Group's 36% year-on-year revenue growth, triple-digit growth in AI product revenue for ten consecutive quarters, and the instant retail platform's progress toward management's stated FY2028 GMV target of RMB 1 trillion.
J.P. Morgan disagrees with this market pricing. The firm believes that if the $100 billion cloud revenue target is achieved and valued reasonably, the cloud business alone could command a market capitalization of $400 billion, a potential not yet reflected in the current share price.
The firm maintains its $205 price target for Alibaba's US-listed shares, based on 16 times estimated FY2028 earnings per share. This is supported by a sum-of-the-parts valuation as a secondary method: applying a 14x P/E multiple to core commerce profits for the 2026 calendar year and a 6x P/S multiple to the cloud business for the 2026 calendar year. Key downside risks include competitive threats from large internet peers like Tencent and Baidu in local services; prolonged pressure on margins from extended digital content investment cycles; and slower-than-expected improvement in mobile business monetization.
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