Alibaba Group Holding Limited

🇺🇸New York Stock Exchange
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Alibaba Group Holding Limited stock analysis BABA overview
Slightly Bullish +25

Alibaba’s AI Growth Fails to Mask Plunging Profits: How to Play BABA Stock After Q4 Earnings

📅 Alibaba released its fiscal fourth-quarter 2026 earnings before markets opened on May 13.

📉 The company missed estimates again, continuing the trend of missing expectations in the previous three quarters.

📈 Revenue grew 11% year-over-year to $35.28 billion like-for-like after adjusting for disposed assets.

🛒 China e-commerce revenue increased 1% year-over-year despite excluding contra revenue from new business development.

☁️ The cloud segment was a bright spot with revenue and adjusted EBITA rising 38% and 57%, respectively.

🤖 AI-related revenues grew triple digits for the 11th consecutive quarter within the cloud segment.

💸 Adjusted EBITA plunged 84% year-over-year to $740 million as the company barely reached adjusted net profit break-even.

⚠️ The firm posted an operating loss of $123 million and burned $2.5 billion in cash during the March quarter.

👷 Spending increases on quick commerce, user acquisition for the Qwen app, and cloud infrastructure drove higher costs.

💬 CFO Toby Xu expressed confidence in continuing investments in AI and Cloud to strengthen competitive advantages.

⚠️ Analysts note markets are punishing tech stocks that have not yet justified their burgeoning AI capital expenditures.

🧪 Alibaba has deployed over 100,000 Zhenwu parallel processing units on its public cloud platform for AI chips.

🏭 More than 30 automakers and autonomous driving companies are currently using Alibaba’s AI chips.

🇨🇳 The company’s strategic goals align with the Chinese government's push for domestic chip production and tech stack independence.

💹 From a valuation perspective, BABA stock trades at a forward P/E multiple of around 21.7 times.

Bullish Signals
  • Alibaba's Q4 revenue rose 11% year-over-year to $35.28 billion on a like-for-like basis, demonstrating resilience despite overall profit challenges.
  • The cloud segment remains a standout bright spot with revenue and adjusted EBITA rising by 38% and 57% respectively, showcasing strong operational performance.
  • AI-related revenues within the cloud segment grew triple digits for the 11th consecutive quarter, highlighting sustained momentum in this high-growth area.
  • Over 100,000 Zhenwu parallel processing units (PPUs) have been deployed on Alibaba's public cloud platform, indicating robust adoption of its AI infrastructure.
  • More than 30 automakers and autonomous driving companies are using Alibaba's AI chips, expanding its ecosystem partnerships and market reach.
  • Alibaba aligns strategically with the Chinese government's focus on domestic chip production and reducing reliance on U.S. giants like Nvidia, offering long-term policy tailwinds.
  • Despite short-term profit declines, management expressed confidence in the business outlook and commitment to continuing investments in AI and Cloud to strengthen competitive advantages.
  • The forward price-to-earnings multiple of around 21.7 times suggests BABA stock could be undervalued following the recent earnings dip, presenting a potential buying opportunity.
Risk Factors
  • Alibaba missed earnings estimates for the fourth quarter of fiscal year 2026, marking a fourth consecutive quarter of missing targets and driving the stock lower despite AI growth.
  • Adjusted EBITA plunged 84% year-over-year to $740 million, while operating loss reached $123 million, highlighting severe profitability declines amid record spending.
  • The company burned $2.5 billion in cash during the March quarter due to increased investments in AI infrastructure, quick commerce, and user acquisition for the Qwen app.
  • Core e-commerce customer management revenue only grew by 1% year-over-year compared to a potential 8% growth excluding new business development program impacts, indicating underlying weakness in Alibaba's primary driver.
  • High capital expenditure on AI and quick commerce remains unproven with no immediate translation into top-line growth, raising concerns similar to other U.S. tech stocks that are being punished for aggressive AI spending without visible returns.
  • China e-commerce customer management revenue grew only 1% YoY vs an adjusted figure of 8% if excluding contra revenue from new business development programs, suggesting organic core growth is weak.
Full Analysis
Alibaba Group reported its fiscal fourth-quarter 2026 earnings before the markets opened on May 13, missing analyst estimates for the period following misses in the previous three quarters. While revenue increased 11% year-over-year to $35.28 billion on a like-for-like basis, the company’s core e-commerce business saw only a 1% increase in customer management revenue. The growth would have been approximately 8% without the contra revenue impact from a new business development program. Despite AI-related revenues rising triple digits for the 11th consecutive quarter and cloud segment adjusted EBITA jumping 57%, adjusted profits plummeted 84% year-over-year to $740 million, with the company barely breaking even on net profit. The earnings slump is primarily attributed to losses in the quick commerce business and substantial capital expenditures on AI infrastructure and user acquisition for its Qwen app, totaling $2.5 billion in cash burned during the March quarter. CIO Toby Xu confirmed confidence in continuing investments in AI and Cloud despite the current profitability hit. The article argues that these initiatives are long-term growth drivers and notes that Alibaba’s high-end AI chips are gaining adoption domestically as Chinese companies seek to reduce reliance on U.S. suppliers like Nvidia, a strategic goal aligned with government priorities. From a valuation perspective, the article identifies BABA stock as a potential buy at a forward price-to-earnings multiple of around 21.7 times following the post-earnings dip. The author suggests that unit economics in instant commerce should improve and AI investments will eventually pay off over the coming years. However, the article acknowledges the risk associated with high capex spending on AI without immediate top-line justification, noting that markets have recently punished U.S. tech stocks unable to translate such expenditures into growth, though Alibaba’s case may differ due to domestic strategic alignment.