Alibaba announced its intention to invest at least $53bn over the next three years, to advance its cloud computing and AI infrastructure. This implies a steep increase in overall spending compared to market forecasts.
AI is expected to play an increasingly important role across its e-commerce, services and consumer applications divisions. It’s hoped these investments will enhance efficiency, user engagement and business innovation.
The shares fell 10.2% on the day.
Our view
Alibaba’s decision to go all-in on AI and cloud computing has unnerved some investors. Going forward we’ll want to see clear evidence that the $53bn set aside for AI and cloud investment is being deployed prudently.
Alibaba is China's largest e-commerce company, and that part of the business remains the key profit driver. But Chinese retail remains a tough battleground, and in the face of intense competition, the fight to keep prices low and retain market share may put a ceiling on growth here in the near term.
Alibaba also houses the impressive AliExpress, which connects global consumers to a vast marketplace, where they can buy directly from manufacturers all over the world. We think the international markets represent a lucrative opportunity for the group. Growth has been impressive, but it’s come at the cost of heavy losses. The break-even point doesn’t look to be getting any closer. We’ll need to see a clearer path to profitability before getting too excited.
Alibaba is also looking to carve out a niche in the fast-growing world of cloud computing. There hasn’t been a high-octane lift-off. But it’s starting to make meaningful profits, which could accelerate further as it pivots to higher-margin cloud services, including AI-related products which have shown triple-digit growth for six consecutive quarters.
The business remains cash-rich and cash-generative enough for Alibaba to make generous returns to shareholders in the form of share buybacks. However, further payouts cannot be guaranteed, particularly as it ramps up investment in cloud and AI.
Alibaba is subject to a complex influence of macroeconomic forces. On the one hand, efforts to stimulate the economy by the Chinese authorities should act as a tailwind if they have the desired effect. But the re-election of Donald Trump threatens to ignite a trade war between Washington and Beijing. Until further clarity emerges about the White House’s trade policies, investors are likely to remain cautious.
Despite a strong uplift so far in 2025, the valuation remains well below the long-term average. That reflects relatively underwhelming business performance in recent years as well as disappointment in failed attempts to spin off parts of the company through separate IPOs.
With that distraction seemingly off the table, attention has turned to the more exciting growth opportunities related to AI. We support the bold investment plan, but it does bring intense pressure to deliver growth. If management can execute well, shareholders will hopefully be rewarded for their patience, but there remain some governance concerns and execution risks ahead and there are no guarantees.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, such as electronic components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Alibaba’s management of ESG risks is strong.
Key risks the group’s exposed to relate to the handling of private information, specifically high volumes of Personally Identifiable Information (PII). Its use of analytics puts it at risk of data and privacy breaches. Increasing regulatory scrutiny in China increases Alibaba’s exposure to business ethics risk. Alibaba’s Chief Risk Officer oversees data protection and information security, with the privacy policy following industry best practice. Controls around business ethics risk could be enhanced through a clear governance structure and regular ethical risk assessments, which are currently lacking.
Alibaba key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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