--- title: "Wall Street Comments on Alibaba Earnings: \"Profitability Inflection Point\" Has Arrived! \"Q3 AI Revenue Growth Guidance\" Reaches 50%" type: "News" locale: "en" url: "https://longbridge.com/en/news/296566351.md" description: "Goldman Sachs, J.P. Morgan, UBS, and others believe the core impact of Alibaba's earnings report lies in three \"certainties\": 45% growth in external cloud business revenue, with Q3 guidance exceeding 50%; high visibility of returns on massive Capex, with AI-related revenue growing at triple-digit rates for 12 consecutive quarters and MaaS annualized revenue exceeding RMB 16 billion; management confirmed the payback period for AI investments is less than 3 years; core e-commerce stabilizing and new businesses reducing losses, with AI application business losses peaking in the June quarter" datetime: "2026-08-21T04:12:21.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/296566351.md) - [en](https://longbridge.com/en/news/296566351.md) - [zh-HK](https://longbridge.com/zh-HK/news/296566351.md) generator: "portal-rs" --- # Wall Street Comments on Alibaba Earnings: "Profitability Inflection Point" Has Arrived! "Q3 AI Revenue Growth Guidance" Reaches 50% Piercing through the fog of the financial report, Wall Street declares that the moment for "cloud business revaluation" of Alibaba has arrived! Wallstreetcn Article wrote that Alibaba's FY2027 Q1 (Calendar Year 2026 Q2) showed revenue increasing by 9% year-over-year to RMB 268.95 billion, but profits were significantly pressured by AI investments and one-time expenses. Alibaba Cloud's external commercial revenue grew by 45%, AI-related revenue achieved triple-digit growth for 12 consecutive quarters, and profitability improved simultaneously. Instant retail became the growth engine for e-commerce, while traditional e-commerce faced pressure. Single-quarter capital expenditure reached as high as RMB 67.678 billion, and free cash flow turned significantly negative. According to Zhuifeng Trading Desk, although earnings per share (EPS) on the books missed expectations due to non-operating factors (such as fines, goodwill impairment, and rising tax rates), the four major Wall Street investment banks (Goldman Sachs, J.P. Morgan, UBS, Jefferies) conveyed a highly consistent and strong signal in their research reports on August 21: **Alibaba's fundamentals have reached a substantial profitability inflection point.** Moreover, Wall Street believes that **Alibaba's earnings report represents a classic "expectation gap" trade.** Wall Street investment banks believe the core impact of this earnings report lies in three "certainties": First, **the strong explosion of cloud business and AI**, with external cloud revenue growth reaching 45%, and guidance for the September quarter (Q3) pointing directly to over 50%; Second, **high visibility of returns on massive capital expenditure (Capex)**, with management clearly stating that the payback period for AI investments is less than 3 years; Third, **stabilization of core e-commerce and loss reduction in new businesses**, with losses in the AI application business peaking in the June quarter. J.P. Morgan stated bluntly that **the initial stock price correction will be an excellent "buy on dip" opportunity**, as market focus will inevitably return to Alibaba Cloud's strong profitability and AI-driven growth curve. Currently, all four major investment banks **maintain "Buy/Overweight" ratings**, with the highest target price seen at $206. ## Clearing the Profitability Fog: Core EBITDA Beats Expectations, EPS Miss Has Reasons The market's initial negative reaction stemmed from weak book profits, but breakdowns by J.P. Morgan and UBS show that Alibaba's core operating performance actually exceeded expectations. - **Non-operating factors dragged down EPS:** J.P. Morgan pointed out that adjusted earnings per share (EPS) was RMB 8.52, 24% lower than the Bloomberg consensus expectation. However, this was not due to business deterioration but caused by four non-operating items: > 1. Effective tax rate rose to approximately 40%; 2) Goodwill impairment of RMB 4.5 billion; 3) Interest and investment income missed expectations (only RMB 9 billion, compared to RMB 20-30 billion in previous quarters); 4) A fine of €550 million brought by the EU Digital Services Act. - **Core profits are actually strong:** Excluding the above noise, Alibaba's actual operating profit performance was impressive. According to J.P. Morgan data, adjusted EBITDA reached RMB 39.1 billion, exceeding the market consensus expectation and J.P. Morgan's forecast by 6% and 7%, respectively. UBS also stated that total revenue increased by 9% year-over-year, and adjusted EBITA decreased by 30% year-over-year, both fully meeting expectations. ## "Davis Double Play" in Cloud Business and AI: Q3 Growth Guidance Points to 50%, Margins Continue to Expand Cloud business is the brightest star in this earnings report and the core logic for Wall Street's collective bullishness on Alibaba. Both Goldman Sachs and Jefferies emphasized that the accelerating growth momentum of the cloud business remains intact. - **AI revenue shows explosive growth:** J.P. Morgan and Goldman Sachs pointed out that the year-over-year growth rate of cloud revenue from external customers accelerated from 40% in the previous quarter to 45%. AI-related product revenue continued its strong momentum, reaching RMB 12.4 billion (annualized scale approaching RMB 50 billion / $7.3 billion), achieving triple-digit year-over-year growth for the 12th consecutive quarter. - **Q3 growth guidance shocks the market:** Wall Street is extremely optimistic about future guidance. Goldman Sachs, UBS, and Jefferies consistently expect that, driven by strong AI demand, cloud business revenue growth in the September quarter (Q3) will further accelerate to over 50% and continue to climb in the subsequent December and March quarters. - **MaaS (Model-as-a-Service) commercialization accelerates:** Data from UBS and Goldman Sachs shows that as of August, MaaS Annual Recurring Revenue (ARR) had exceeded RMB 16 billion ($2.4 billion) and is expected to achieve the target of over RMB 30 billion by the end of the year. - **Margins steadily expanding:** As the proportion of high-margin AI-related revenue increases (accounting for 35% of external cloud revenue in the June quarter, expected to reach 50% by the end of FY2027), the cloud business EBITA margin has reached 11.6%-12%. Goldman Sachs expects that, in the long term, there is confidence that the cloud business EBITA margin will reach or exceed the 20% target. ## Confidence Behind the Surge in Capital Expenditure: High Certainty in AI Return on Invested Capital (ROIC) In the June quarter, Alibaba's capital expenditure (Capex) surged to RMB 67.7-68 billion (a significant increase from RMB 26.9 billion in the March quarter), triggering short-term market concerns about cash flow. However, Wall Street provided an extremely positive interpretation. - **High ROIC supports massive investment:** Goldman Sachs and Jefferies pointed out that the increase in capital expenditure was mainly affected by procurement cycle fluctuations, CPU computing power expansion, and component price increases. Management clearly stated that, based on the current economic benefits of AI products, **the payback period for AI computing power investments is within 3 years.** Wallstreetcn previously wrote that Morgan Stanley also believed in its research report that Alibaba's heavy spending on AI would pay back within three years. - **Payback period expected to further shorten:** Jefferies emphasized that as product mix optimization, adoption of self-developed T-Head chips, and diversification of commercialization methods improve gross margins, the payback period is expected to shorten further to 2-2.5 years. Based on this, Goldman Sachs raised its capital expenditure forecast for FY2027/FY2028 to RMB 210 billion/RMB 240 billion, believing that strong AI demand and favorable ROIC fully support this level of expenditure. ## Stabilization of E-commerce Fundamentals and Loss Reduction in AI Applications: Profitability Inflection Point Fully Emerges In addition to cloud business, Alibaba's traditional e-commerce fundamentals are improving, and the "cash-burning" phase of new businesses has peaked. - **Core e-commerce (Taobao Tmall) stabilizes:** J.P. Morgan and UBS pointed out that although reported Customer Management Revenue (CMR) decreased by 7% year-over-year (to RMB 82.5 billion), it actually increased by 1% on a comparable basis (adjusting for reverse revenue subsidies). The number of 88VIP members maintained double-digit growth, reaching approximately 64 million. Jefferies expects that CMR growth and traditional e-commerce EBITA in the September quarter will improve quarter-over-quarter. - **Losses in AI Labs and Applications (newly disclosed segment) peak:** Alibaba disclosed this segment separately for the first time (including Qwen ToC applications and model training). UBS pointed out that losses in this segment reached RMB 13.8 billion in the June quarter, but with improved sales and marketing efficiency of the Qwen App and decreased model training costs, losses are expected to narrow and stabilize at RMB 11-12 billion in the coming quarters. - **Unit economics of Instant Retail (Quick Commerce) improve:** Goldman Sachs and UBS stated that the unit economics of instant retail continue to improve through higher average order value (AOV) and fulfillment efficiency. Management expects losses to halve in FY2027 and maintains the goal of achieving profitability in FY2029. ## Wall Street Consensus: Valuation Revaluation Begins, Buy on Dips Based on the strong reversal in fundamentals mentioned above, the four major investment banks unanimously agree that Alibaba's current valuation is highly attractive and have given clear "Buy" or "Overweight" ratings: > **UBS:** Maintains "Buy" rating, raising the target price to $206/HK$200 based on Sum-of-the-Parts (SOTP) valuation. UBS believes that the investment logic of Alibaba as a proxy for China's AI supply chain remains intact, and the current 18x FY27E P/E valuation requirement is not high. > > **J.P. Morgan:** Maintains "Overweight" rating, target price $205/HK$200. Advises investors to "buy on dips," believing that earnings are key variables in judging the upper limit of AI losses and the sustainability of margins. > > **Jefferies:** Maintains "Buy" and Top Pick rating, raising the target price to $190/HK$184. > > **Goldman Sachs:** Maintains "Buy" rating, target price $186/HK$180. Goldman Sachs emphasizes that the inflection point in EPS (starting from the September quarter) and the acceleration of cloud business lay a solid foundation for Alibaba's revaluation. ### Related Stocks - [BABA.US](https://longbridge.com/en/quote/BABA.US.md) - [BABU.US](https://longbridge.com/en/quote/BABU.US.md) - [BABX.US](https://longbridge.com/en/quote/BABX.US.md) - [BABO.US](https://longbridge.com/en/quote/BABO.US.md) - [BABC.US](https://longbridge.com/en/quote/BABC.US.md) - [KBAB.US](https://longbridge.com/en/quote/KBAB.US.md) - [BABW.US](https://longbridge.com/en/quote/BABW.US.md) - [BBYY.US](https://longbridge.com/en/quote/BBYY.US.md) - [09988.HK](https://longbridge.com/en/quote/09988.HK.md) - [GS.US](https://longbridge.com/en/quote/GS.US.md) - [JPM.US](https://longbridge.com/en/quote/JPM.US.md) - [UBS.US](https://longbridge.com/en/quote/UBS.US.md) - [JEF.US](https://longbridge.com/en/quote/JEF.US.md) - [89988.HK](https://longbridge.com/en/quote/89988.HK.md) - [HBBD.SG](https://longbridge.com/en/quote/HBBD.SG.md) - [W4VR.SG](https://longbridge.com/en/quote/W4VR.SG.md) - [JPM-M.US](https://longbridge.com/en/quote/JPM-M.US.md) - [JPM-C.US](https://longbridge.com/en/quote/JPM-C.US.md) - [JPM-D.US](https://longbridge.com/en/quote/JPM-D.US.md) - [JPM-L.US](https://longbridge.com/en/quote/JPM-L.US.md) - [8634.JP](https://longbridge.com/en/quote/8634.JP.md) - [JPM-K.US](https://longbridge.com/en/quote/JPM-K.US.md) - [JPM-J.US](https://longbridge.com/en/quote/JPM-J.US.md) ## Related News & Research - [Alibaba Q2 Preview: Mixed setup ahead of earnings, high expectations from AI business](https://longbridge.com/en/news/296380137.md) - [Alibaba DAMO Academy Launches Liver Cancer AI Model, Detects 15 Missed Cases in 2 Mths](https://longbridge.com/en/news/296755303.md) - [SoftBank plans $6.29 billion corporate bond issuance amid AI fundraising boom](https://longbridge.com/en/news/296729829.md) - [BABA-W Further Integrates Biz Structure, Combining Alibaba Cloud and Chip Unit T-Head Into 'AI Cloud and Compute Services'](https://longbridge.com/en/news/296473543.md) - [BABA-W Introduces AI Music Model 'HappyShrimp'](https://longbridge.com/en/news/296166167.md) --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**