Morgan Stanley: Alibaba Cloud's accelerated business growth becomes a key catalyst for stock price, rating "Overweight"

Morgan Stanley published a research report, expecting Alibaba (09988.HK) to maintain growth momentum in its cloud business, with a growth rate in the fourth quarter of fiscal year 2026 expected to exceed 40%, higher than the 36% in the third quarter. At the same time, customer management revenue (CMR) is expected to grow 7% year-on-year on a comparable basis, significantly accelerating from 1% in the third quarter. The firm believes that the acceleration of the cloud business is a key catalyst for the stock price and considers Alibaba as a preferred stock.

The report points out that Alibaba's recent price increase in cloud services will drive short-term growth, while model as a service (MaaS) will become a major long-term growth driver, expected to contribute over 50% of cloud revenue in the future. Additionally, the company's management aims to halve the losses of local life services (Ele.me) in fiscal year 2027 compared to fiscal year 2026, and further halve them in fiscal year 2028, with profitability expected in fiscal year 2029, which is a positive signal for the market.

Based on expectations of expanded losses in "other businesses," Morgan Stanley has lowered its adjusted EBITA forecasts for Alibaba for fiscal years 2026 and 2027 by 7% and 12%, respectively, but maintains a target price of $180 for Alibaba (BABA.US) based on a discounted cash flow model, corresponding to an approximate 23 times price-to-earnings ratio for fiscal year 2028, with a rating of "Overweight."