Alibaba Turns the Pricing Screw on Cloud Services as AI Spending Spooks Investors

The Chinese e-commerce and cloud computing giant is pursuing a high-stakes strategy: pouring billions into artificial intelligence infrastructure while simultaneously jacking up prices on its cloud services. The market, however, remains unconvinced.

Alibaba’s stock closed the week in Frankfurt at €115.60, posting a weekly decline of roughly 3.5 percent. Year-to-date losses now stand at about 13 percent, leaving the shares trading just below their 50-day moving average and well off the 52-week high. The distance to the 200-day line underscores the persistent bearish pressure.

The disconnect between operational momentum and market sentiment is stark. On the one hand, Alibaba is making aggressive moves to monetize its AI capabilities. The company has ended the price war that defined its cloud strategy in early 2024, when management slashed rates to defend market share. Now, tariffs for services running on specialized AI chips have jumped by as much as 34 percent, and the popular Bailian model platform has also become more expensive.

HSBC analysts see this pricing pivot as a structural positive, arguing the adjustments should meaningfully strengthen long-term margins in the cloud division. The unit’s revenue from external customers grew 35 percent in the most recent quarter, while AI-specific products continued to post triple-digit growth rates.

On the product side, Alibaba’s newly formed Token Hub unit is delivering results. Its video-generation model “HappyHorse-1.0” recently topped blind tests, pushing ByteDance’s acclaimed “Seedance 2.0” into second place. Days later, the company unveiled “HappyOyster,” a model that generates interactive 3D environments for gaming and film production, putting it in direct competition with Tencent’s advanced 3D technologies. The timing is notable, as Western rivals like OpenAI have partially paused their video services.

Should investors sell immediately? Or is it worth buying Alibaba?

Yet the cost of this ambition is weighing heavily on the balance sheet. Adjusted operating profit collapsed 78 percent last quarter, as heavy spending on AI infrastructure and rapid commerce expansion carved a multibillion-dollar hole in free cash flow. Investors fear a prolonged margin squeeze.

Regulatory filings added to the unease. Mid-April, Alibaba disclosed the issuance of new ordinary shares to service employee stock option programs. While the dilution for existing shareholders is modest, management has not announced any offsetting share buyback program.

The next major catalyst arrives on May 14, when Alibaba reports results for the March quarter. The numbers will provide concrete evidence on whether the heavy investment in cloud computing is beginning to pay off in terms of profitability. Analysts will be watching the quick-commerce business particularly closely, where losses are expected to halve over the next two fiscal years. Hitting those milestones would relieve pressure on the margin-thin AI division and bolster the long-term growth narrative.

For now, the bull case rests on a simple proposition: that Alibaba’s pricing power and product leadership in AI will eventually translate into fatter margins, and that the current share price — down 13 percent for the year — has already priced in the worst of the earnings pain. Freedom Broker added its voice to that camp on Friday, upgrading the stock to “Buy” and lifting its price target to $190, citing the rapidly expanding cloud and AI business. The majority of brokerages covering the stock now recommend a strong buy.

The market, however, is waiting for proof.