TMTPOST -- Wall Street became more upbeat on Alibaba Group after the Chinese tech giant posted stellar revenue growth driven by artificial intelligence (AI) boom.
Credit：Alibaba Cloud
Ryan Cohen, the GameStop CEO and billionaire investor, in recent months has boosted his personal stake in Alibaba to rough 7 million shares worth about US$1 billion, The Wall Street Journal cited unanimous sources on Thursday when Alibaba released earnings report.
Cohen earned the title of Meme-Stock King for his words of investments in GameStop and other businesses helped ingniting explsive rallies in meme stocks during the pandemic. It was reported Cohen has had discussions with Alibaba more recently and the sizable bets on Alibaba showed his bullishness to China’s economic growth in the long term. But the report couldn’t determine Cohen’s future plan regarding his stake in the company.
Goldman Sachs Equity Research analysts lifted its Alibaba 12-month target price to US$160/HK$156 from US$117/HK$114, an increase of nearly 37%. The change of target price reflected stabilizing domestic e-commerce profits and faster Alibaba Cloud revenue growth of 23%/25% for the fiscal year 2026/2027, compared with the previous forecast of a 13%/14% growth, according to a note on Friday.
Alibaba has upgraded capital expenditure (CapEx) targets to meet explosive AI inference demand, and the targeted annual CapEx represents spending of RMB100 billion (US$14 billion) based on US$14 billion CapEX over the next years, Goldman Sachs analysts led by Ronald Keung noted. Given the latest annual CapEX target, they expect Alibaba Cloud to solidify its AI/cloud infrastructure scale leadership and lift their target multiple of Alibaba Cloud to 3.5 times from 2.8 times, implying 4.6 times external revenue, up from 3.5 times.
Goldman Sachs analysts also remained their Buy rating on Alibaba’s stabilizing core e-commerce with valuation upside from an accelerating AI/cloud business. said in their note.
According to financial report for its third fiscal quarter ended December 31 that Alibaba on Thursday, revenue gained 8% year-over-year (YoY) to RMB280.2 billion (US$38.4 billion), ahead of analysts estimated RMB277.4 billion. On Non-GAAP basis, Alibaba earned RMB21.39 diluted earnings per American depositary share (ADS) for the December quarter with a 13% YoY increase, versus analyst expectations of RMB19.47 per ADS.
Both of Alibaba’s two core businesses, e-commerce and cloud, beat estimates. Taobao and Tmall Group, which includes two major online marketplaces, brought RMB99.00 billion for the September quarter. That represented a 1% YoY increase, reversing a surprisingly 1% YoY fall from April to June. Cloud Intelligence Group, which houses Alibaba’s AI-related projects and hosts computing power for external clients, posted the fastest revenue growth in about two years. The division brought RMB31.74 billion with a 13% YoY rise, more stellar than a 7% increase in revenue for the previous quarter. Alibaba mainly attributed the momentum to a double-digit public cloud revenue growth, including the growing adoption of AI-related products. Notably, AI-related product revenue maintained triple-digit year-over-year growth for the sixth consecutive quarter.
Alibaba will aggressively invest in AI infrastructure and its planned investment in cloud and AI infrastructure over the next three years is set to exceed what it has spent over the past decade, said CEO Eddie Wu on an earnings call. The company will substantially increase research and development (R&D) investment in AI foundation models to maintain its technological leadership and drive the development of AI-native applications, and also will increase investment in AI application, R&D, and computing power and deeply integrate AI across its businesses, according to Wu.
Goldman Sachs believes Alibaba’s faster-than-expected cloud revenue growth and CapEx spending are positive to China data center industry’s demand and supply dynamics, specifically, positive to Chnese data center operators, including GDS and VNET. Alibaba is the biggest customer of GDS, accounting for 33.5%of total area committed and 30.1% of net revenue of GDS China in the third quarter of 2024.
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