Aggressive spending strains cash, but Alibaba’s AI cloud growth points to strong long-term returns, analysts say
Alibaba Group Holdingis expected to further accelerate cloud growth, expand operating margins and achieve faster payback on artificial intelligence investments, analysts say, as the Chinese tech giant reaches the halfway mark of its massive 380 billion yuan (US$56 billion) AI infrastructure spending plan.
“The most important incremental message, in our view, is that cloud growth has not yet peaked,” Nomura analysts said in a research note on Friday.
45 per cent revenue increase in its cloud and AI businessesfor the three months ended June, marking the fastest growth in 22 quarters.
“This accelerating growth is occurring alongside meaningful margin expansion rather than at the expense of profitability,” Nomura analysts wrote, highlighting that the AI cloud unit’s adjusted Ebita margin reached 11.6 per cent, up from about 7 per cent a year ago.
Jefferies expected revenue growth for Alibaba’s Cloud and Compute Services, the company’s new reporting segment covering its cloud business and T-Head chip arm, to accelerate beyond 50 per cent year on year in the September quarter, with momentum building further into the next two quarters through March 2027.
Eddie Wu Yongmingsaid its AI computing investments would break even within three years – or possibly two as gross margins rose.