Alibaba’s AI Cloud Surge Fuels a Rally, but Target Cuts and E-Commerce Drag Keep the Story Contradictory

Alibaba shares wrapped up a volatile week on a high note, closing at €98.10 in Frankfurt on Friday with a modest daily gain of 0.82%. The headline figure, however, is the 14.34% weekly advance — a burst of momentum that stands in sharp contrast to the stock’s broader trajectory: a year-to-date decline of 26.24% and a month-on-month slip of 1.80%.

The rally has been fuelled by renewed conviction in Alibaba’s cloud and artificial intelligence business, but the picture is far from uniform. Even as the stock climbed, four major banks — Morgan Stanley, Citi, Daiwa and HSBC — trimmed their price targets on the same underlying concerns: China’s sluggish consumer spending and the margin pressure eating into the core commerce operation.

Morgan Stanley lowered its target from $190 to $180 per ADR, Citi from $208 to $192, Daiwa from $200 to $175, and HSBC from $176 to $170. All four maintain a “Buy” rating. The pattern — lower targets but persistent bullish calls — captures the tug-of-war between Alibaba’s fast-growing cloud unit and its struggling e-commerce engine.

The cloud business, however, delivered the kind of numbers that keep the bull case alive. In the fourth quarter of fiscal 2026, Alibaba’s externally commercialised cloud revenue rose 40% year over year, with AI-related products accounting for 30% of that external cloud turnover for the first time. The annualised recurring revenue from AI crossed RMB 35.8 billion. During a May earnings call, the company signalled that AI’s share of cloud revenue could exceed 50% within a year, cementing its role as the unit’s primary growth driver.

CEO Wu Yongming insisted that the returns on AI investment are “highly secured” and forecast strong demand over the next three to five years. Alibaba plans to plough more than RMB 380 billion into cloud and AI infrastructure over that period, and has already produced 470,000 self-developed chips in series. The commitment is enormous, but so is the near-term cost: quarterly adjusted EBITA slumped 84% to RMB 5.1 billion, Alibaba posted an operating loss of RMB 850 million, and free cash flow swung to a net outflow of RMB 17.3 billion.

Against that backdrop, the bullish analysts remain fixated on the inflection point they see ahead. Bank of America Securities reiterated a Buy with a $172 target, forecasting cloud revenue growth of 45% in the June quarter and a margin improvement from 9% to 11%. It also expects the losses in Alibaba’s quick-commerce business to narrow from RMB 18 billion to around RMB 10 billion. JPMorgan held its “Overweight” rating with a $205 target, raising its fiscal 2028 revenue estimate by 3% and its 2027 earnings per share forecast by 2%, while trimming the 2027 revenue projection by only 1%. JPMorgan also believes upcoming quarterly results could beat market expectations.

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

Yet the near-term headwinds are tangible. Bank of America projects a 7.7% decline in core commerce revenue (CMR) and a 33% drop in EBITA to RMB 26.2 billion for the June quarter. Morgan Stanley analyst Gary Yu, who kept Alibaba as a “Top Pick”, nonetheless sees Chinese e-commerce results under pressure from weak consumer demand. On the positive side, the quick-commerce losses are narrowing, providing some offset.

A separate risk weighs on the stock from Washington. Alibaba remains on the Pentagon’s list of alleged Chinese military companies under Section 1260H, a roster that expanded to 188 firms in June. A federal judge temporarily blocked the associated loss of lobbying privileges, but a hearing is pending and the legal fight is far from resolved. The stock’s 30-day annualised volatility of 45.29% underscores how sensitive it remains to headlines — including those from the unresolved Pentagon dispute.

Technically, the rally has not yet broken the stock free of its downtrend. Alibaba shares trade 4.62% below the 50-day moving average of €102.85 and 20.75% below the 200-day average of €123.78. The 52-week high of €161.60, set in October 2025, is still 39.29% away, while the June low of €79.50 sits 23% below the current level. The relative strength index of 58.1 suggests room for further upside before overheating.

Supporting the recent price action, southern capital flows via the Hong Kong–Stock Connect channel surged last week, with net inflows totalling HK$39.055 billion. Alibaba alone drew HK$8.318 billion, and its Hong Kong-listed shares soared 17.11% over the week. Meanwhile, Alibaba unveiled its Qwen Robot Suite, including three new models for navigation, manipulation and environmental prediction, adding another dimension to its AI push beyond the cloud.

The next major test arrives in August 2026, when Alibaba reports its quarterly results. Investors will scrutinise cloud margin trends, the pace of loss reduction in quick-commerce, and any developments in the Pentagon case. For now, the rally is intact, but the divergent signals from analyst targets and the company’s own cash-burning investment cycle leave the narrative unresolved.