How Alibaba's Valuation Changed Post-Earnings

Alibaba just did exactly what I wanted it to do.

And one thing I honestly wasn’t expecting…

When I originally dug into BABA, the thesis was simple:

The real reason that got me buying it for the Offside Portfolio was where management quietly started moving its money into.

Less capital dedicated to outside equity stakes,

More toward: Cloud, Infrastructure, AI.

In other words,

Alibaba was slowly turning itself into a very different company than the one the market was valuing.

Last night’s earnings gave us the clearest piece of evidence proving this transformation is working.

As AI revenue posts its 12th consecutive quarter of expansion, Alibaba has now become the largest AI cloud provider in China.

Those aren’t small improvements.

They struck directly at my original thesis, and now makes this a very different company to value moving forward.

But,

There was a catch… A big one.

Capex exploded by 75%, and cash flows collapsed along with reported EPS.

Alibaba is now willing to sacrifice today’s cash flows to capture one of the biggest races in the global economy.

Unlike its US peers though:

That creates a different question to answer after this recent quarter.

What should Alibaba be worth if the market stops valuing it like an e-commerce company and starts valuing it like an AI cloud platform?

Alibaba’s priorities have changed since I first started looking into the business in 2022.

From 2018-2022, the company had dedicated a large chunk of its capex to equity investments in other Chinese companies.

This of course allowed them to expand their logistics, content, and payment systems platform around the e-commerce crown jewel.

Once the Chinese bear market ended, these stakes had grown significantly, with one widely reported in particular:

Still, Alibaba chose to NOT report this unrealized equity gain in its income statement (unlike its US peers reporting paper gains in Anthropic on their EPS bottom line.)

Anyways,

The capex composition took a wild turn in 2025, as Alibaba decided to capitalize on the AI opportunity as China’s technology vanguard.

Capex headed toward PP&E is now 50.0x larger than the current asset base.

Meaning, they are investing at the most aggressive pace to expand their cloud capacity and infrastructure for open-source AI services, a pace not even the US hyperscalers have been able to adopt.

The question is whether it’s working…

Alibaba’s cloud revenue growth has pushed double-digit rates for five consecutive quarters.

Not only is this growth consecutive, but it’s also accelerating at a 45% rate for the most recent report.

Cloud EBITDA also grew by 133% to RMB48 billion, with margins headed from 7% to a current 12%.

Obviously, the capex is working much faster and efficiently than any other entity investing in cloud and AI capex right now.

However,

Cloud for business and government users is a lot different than Alibaba’s direct AI products, like the recently released Qwen model.

Moving the magnifying glass over to the AI-specific corner of Alibaba, it’s also clear that they are moving in the right direction.

Revenue moved from RMB9 billion to RMB12.4 billion in a single quarter.

More importantly, they remain miles ahead of their next of kin competitor in the Chinese open-source AI space.

This has massive implications not only for the APAC market, where I suspect AI will become a major player in terms of implementation and advancement.

But also in Europe and the Middle East, where Alibaba already has deep ties.

Here is where Alibaba stacks up compared to other AI cloud competitors in China.

38.1% share taking first place, with their closest competitor carrying only 17.0%.

For Qwen specifically:

That last point is massive.

Alibaba’s Alipay now holds 55% of the Chinese mobile payment market.

If you’ve been to China recently, you know they no longer use physical credit cards or cash for most everyday activities.

It’s all done through Alipay or Tencent’s WeChat.

Having 250 million users automate payments through Qwen inside the Alipay ecosystem makes Alibaba a massive moat in China.

Still,

The company’s valuation barely reflects this moat and leadership position in the world’s fastest growing economy.

I feel like the Chinese economy deserves a deeper dive, especially as its capital deepening cycle could turn into a global record of buybacks and corporate shareholder benefits in the coming years.

That’s for another post though.

Right now,

We have to boil all this information down into how Alibaba’s valuation gets affected from here on out.

Especially when we begin to account for the Ant IPO as a massive windfall.

Here’s Alibaba’s post-earnings price target (Premium members only):