Alibaba share surged 8%, and we still see another 58% upside

• Alibaba's sharp rebound reflects improving sentiment towards hyperscalers and renewed investor interest in undervalued Chinese technology stocks. However, we believe accelerating AI monetisation, rather than short-term market rotation, will drive a more sustainable recovery.
  
  
• Alibaba's cloud business is delivering strong growth and improving profitability. June-quarter revenue surged 45% YoY to RMB48.4 billion, while adjusted EBITA jumped 133% to RMB5.6 billion, demonstrating increasing operating leverage amid rising AI demand.
  
  
• Apple's Qwen partnership could unlock significant long-term opportunities. Integration into Apple Intelligence in China expands Qwen's reach to a large premium smartphone ecosystem, potentially accelerating adoption, enterprise API demand and AI monetisation.
  
  
• Alibaba's full-stack AI capabilities reinforce its competitive advantage. Its leadership in China's AI cloud market, proprietary Zhenwu chips and expanding Qwen ecosystem position it to capture growth across AI infrastructure, models and applications.
  
  
• Despite heavy AI spending, we maintain our Buy rating on Alibaba, supported by improving cloud profitability and AI monetisation potential. Our FY2029-based targets of SGD5.59 (SGX: HBBD), HKD172 (HKEX: 9988) and USD176 (NYSE: BABA) imply approximately 58.3% upside from 5 November 2026 closing prices.

Just two weeks ago, renewed regulatory concerns sent Chinese stocks tumbling after regulators summoned major e-commerce platforms to discuss product quality and consumer protection. The sell-off deepened investors' unease towards a sector already struggling with slowing growth, intense competition and heavy AI spending.

Yet sentiment has turned sharply. On 5 November, the Hang Seng Tech Index surged 5.6%, while Alibaba's Hong Kong-listed shares jumped 8.5% to HKD109.10, extending their five-day winning streak to 13.5%. The momentum carried into the US session, where Alibaba's ADR rose another 2.6%, bucking a broader sell-off in AI hardware stocks, many of which suffered high-single-digit or double-digit declines (in local currency terms).

For investors who have endured months of disappointing returns, the rebound offers some welcome relief. But the more important question is whether this is merely another short-lived rally or the beginning of a more sustainable recovery.

Three key forces converging behind the rally

1. US midterm elections reshape the AI investment landscape

The sweeping Democratic victories in the US midterm elections have introduced a new dynamic into the global technology sector. With Democrats gaining control of both chambers of Congress, investors are reassessing the outlook for AI infrastructure projects. Greater political scrutiny of electricity consumption, environmental impact and community opposition could make it more difficult and costly to develop large-scale data centres, particularly in major US technology and energy hubs such as Texas and Georgia.

The market reaction has been revealing. Chips and data centre stocks came under pressure as investors considered the prospect of slower data centre expansion. Meanwhile, established hyperscalers such as Microsoft, Alphabet and Amazon attracted renewed interest, supported by their substantial existing infrastructure, diversified businesses and stronger balance sheets.

This has also highlighted an important distinction within the AI investment theme: companies with established infrastructure, customers and potential monetisation channels may be better positioned than those relying primarily on future capacity expansion.

2. Depressed valuations welcome capital rotation and leave room for a recovery

The second force is valuation. After a prolonged sell-off, Chinese technology stocks have become increasingly attractive relative to their historical trading levels. As of 30 October 2026, the Hang Seng Tech Index traded at around 18.7X forward earnings, substantially below its 10-year average of 28.8X and 21.0X of US digital economy companies. While valuation alone is insufficient to sustain a market recovery, such a sizeable discount to its historical level suggests that investors have already priced in considerable concerns about regulatory uncertainty, competition and future profitability.

With global technology valuations increasingly sensitive to AI spending and earnings delivery, investors may also be seeking opportunities outside the expensive US technology sector. Chinese technology companies offer an alternative route into AI growth, supported by their domestic ecosystems and comparatively depressed valuations.

Nevertheless, we view this rotation primarily as a near-term sentiment catalyst. For Alibaba, a sustainable re-rating will ultimately require tangible improvements in revenue growth, profitability and returns on AI investment.

3. Apple's Qwen partnership provides a tangible catalyst

Perhaps the most significant company-specific development came on 31 October, when Apple confirmed that Alibaba's Qwen would be integrated into selected Apple Intelligence experiences in China.

The integration began developer beta testing on 4 November, with a broader consumer rollout scheduled for December through iOS 27.3. Users will be able to access Qwen through features including Siri, Writing Tools and Visual Intelligence for tasks such as text understanding and image recognition.

The potential reach is substantial. According to research firm Omdia, more than 110 million iPhones in China are capable of supporting Apple Intelligence, providing Alibaba with access to an established premium smartphone ecosystem without having to build that distribution network itself. Importantly, this is more than another AI product announcement. It represents a significant distribution opportunity for Qwen and an endorsement of Alibaba's model capabilities by one of the world's leading technology companies.

Why we maintain our Buy rating on Alibaba

While improving sentiment and Apple's announcement have helped drive the recent rally, our Buy recommendation rests on a more fundamental development: Alibaba is beginning to demonstrate that its aggressive AI investments can translate into faster revenue growth and stronger profitability at the infrastructure layer.

We see three reasons to remain constructive.

1.  Cloud growth is accelerating, with profitability following.

Alibaba's AI Cloud and Compute Services business is emerging as the group's most important growth engine. In the June quarter, revenue surged 45% year-on-year to CNY48.4 billion, accelerating from 38% growth in the March quarter and marking its fastest growth in 22 quarters. Revenue from external customers also accelerated to 45%, from 30% previously, indicating that demand is increasingly being driven by external customers rather than merely internal consumption. It demonstrates that Alibaba's AI capabilities are generating commercial demand beyond its own ecosystem.

Alibaba also has a substantial advantage in market scale. According to Frost & Sullivan, it commanded a leading 40.1% share of China's AI cloud services market in 2025, exceeding the combined market share of its three major competitors - ByteDance's Volcano Engine (14.8%), Huawei Cloud (13.1%) and Tencent Cloud (7.0%). This dominance provides Alibaba with an established customer base, extensive infrastructure and economies of scale, positioning it to capture growing demand for AI training, inference and increasingly sophisticated agentic AI workloads across China, while supporting its expansion into the broader Asia-Pacific market.

More encouragingly, this growth is beginning to translate into profitability. Cloud adjusted EBITA surged 133% year-on-year to CNY5.6 billion in the June quarter, with margins improving from approximately 7.2% to 11.6%. The combination of accelerating revenue and expanding margins suggests that Alibaba is achieving greater operating leverage as its AI infrastructure scales.

AI-related product revenue also more than doubled year-on-year for the twelfth consecutive quarter, reaching CNY12.4 billion. Its annualised quarterly revenue run-rate has risen to approximately CNY49.5 billion, providing further evidence that AI demand is becoming a substantial commercial business rather than merely a long-term growth ambition.

For investors, the key takeaway is that Alibaba's AI infrastructure is no longer simply absorbing capital. It is already producing meaningful revenue and improving operating earnings, even as the company continues to invest aggressively.

2.  Apple could accelerate Qwen's transition from adoption to monetisation.

The Apple partnership also strengthens another important part of our investment thesis: Alibaba's ability to translate Qwen's expanding ecosystem into commercial opportunities. Beyond potential inference and API revenue, integration into Apple's ecosystem could increase Qwen's visibility among Chinese consumers and developers, encouraging broader adoption of Alibaba's AI models and services.

The strategic significance lies in distribution. As more users and developers become familiar with Qwen, Alibaba could benefit from greater demand for enterprise AI solutions, model deployment services and AI computing resources through its cloud platform.

Apple is not the first international company to adopt Qwen-related technologies. BMW is integrating a Qwen-powered AI assistant into its China-produced Neue Klasse vehicles from 2026. Meanwhile, Alibaba's multi-year partnership with UEFA will bring its Qwen and cloud capabilities into fan engagement and digital content management across major European football competitions. These partnerships serve different purposes but collectively demonstrate Qwen's expanding commercial reach across consumer electronics, automotive systems and enterprise applications.

We believe Apple's endorsement could provide a particularly valuable reference for future partnerships with device manufacturers, software providers and enterprise customers.

3. Alibaba's full-stack AI strategy offers an additional competitive advantage

Another reason we favour Alibaba is its ability to participate across multiple layers of the AI value chain, from proprietary chips and computing infrastructure to foundation models, enterprise services and consumer applications. This vertical integration is becoming increasingly important as AI workloads grow more complex and computationally intensive.

Alibaba's chip subsidiary, T-Head, has already made meaningful progress as of June 2026. Its Zhenwu processors are being deployed through Alibaba Cloud services by more than 650 external customers across over 20 industries, including autonomous driving, financial services and internet platforms. The advantage goes beyond chip commercialisation. Developing its own processors gives Alibaba greater control over its computing architecture, potentially reducing dependence on third-party suppliers and improving the cost efficiency of AI training and inference. Alibaba can also optimise its chips, models and cloud infrastructure together, potentially improving performance and lowering the cost of delivering AI services.

We believe this creates a reinforcing business model: more efficient infrastructure makes Alibaba's AI services more competitive, encouraging adoption and higher utilisation, which in turn supports further investment in technology and capacity.

Combined with its established e-commerce ecosystem, Alibaba has multiple channels through which AI could eventually generate value, including cloud computing, enterprise APIs, subscriptions, merchant productivity tools and AI-powered commerce. They offer Alibaba more opportunities to capture value from AI adoption than companies focused on a single layer of the technology stack.

The biggest risk: Can AI investment generate sufficient returns?

Despite these encouraging developments, Alibaba's aggressive investment programme remains the most important challenge to our bullish thesis.

In the June quarter, free cash flow recorded an outflow of CNY44.7 billion, compared with CNY18.8 billion a year earlier, as capital expenditure reached approximately CNY67.7 billion. The scale of these investments is set to remain substantial. Alibaba has outlined an ambition to expand the global data centre capacity operated by Alibaba Cloud to more than 20GW by 2032, reflecting management's expectation of sustained growth in AI computing demand.

While additional capacity could lift Alibaba's long-term earnings potential, it also raises the amount of capital that must be deployed before those returns are realised.

The contrast between Alibaba's infrastructure and application businesses illustrates this challenge. Cloud adjusted EBITA more than doubled to CNY5.6 billion in the June quarter. However, AI Labs and Applications recorded an adjusted EBITA loss of CNY13.9 billion, compared with CNY3.2 billion a year earlier, reflecting heavy investment in model development, customer acquisition and inference capacity.

This highlights a crucial point: Alibaba's infrastructure business is already demonstrating operating leverage, but its application business has yet to achieve comparable economics.

We expect the next stage of monetisation to depend on two developments. First, continued improvements in inference efficiency should reduce the cost of delivering AI services. Second, Alibaba must convert its growing user and developer ecosystem into recurring revenue through enterprise subscriptions, premium consumer features and API usage.

There are early signs of progress. Management has outlined a pathway to shorten the payback period on AI capital expenditure from approximately three years towards 2.5 years, or potentially less, through improving margins, greater deployment of proprietary chips and more efficient financing arrangements.

At the moment, this remains an objective rather than an achieved result. The challenge will be demonstrating that stronger AI demand can translate into sustained cash generation despite continued infrastructure expansion in the upcoming earnings releases.

Conclusion: Beyond the rebound, the AI opportunity remains intact

Alibaba's latest rally is encouraging, but that alone does not establish a sustainable recovery. Market sentiment can reverse quickly, particularly when global technology valuations remain sensitive to political developments, AI spending and earnings expectations.

What gives us greater confidence is the improvement taking place beneath the surface. Alibaba's cloud business is accelerating, profitability is expanding, and its proprietary chips and AI models are gaining commercial traction. The Apple partnership adds another important distribution channel, potentially strengthening Qwen's position in China's consumer AI ecosystem.

The market's focus on Alibaba's heavy spending is understandable. But we believe investors may be overlooking the growing earnings power of its AI infrastructure business and the longer-term monetisation opportunities emerging across its integrated AI ecosystem.

The next test will be whether Alibaba can sustain cloud growth, improve application economics and demonstrate a credible path towards stronger free cash flow. If these developments materialise, we believe the market has room to reassess the value of Alibaba's AI businesses.

We maintain our Buy rating and FY2029-based target prices of SGD5.59 for Alibaba's Singapore-listed SDR (SGX: HBBD), HKD172 for its Hong Kong-listed shares (HKEX: 9988) and USD176 for its NYSE-listed ADS (NYSE: BABA). These targets imply approximately 58.3% upside from the closing prices on 5 November 2026.

Our conviction rests not on the expectation that Alibaba will spend less on AI immediately, but on the prospect that its growing infrastructure earnings and broader monetisation opportunities will eventually justify today's investment.

Table 1: Earnings table

Metric	FY2026A	FY2027E	FY2028E	FY2029E
P/E (x)	31.3x	19.4x	16.3x	13.3x
EPS (SGD per SDR)	0.11	0.18	0.22	0.26
EPS YoY growth (%)	-61.6%	60.8%	19.0%	22.6%
Dividend yield (%)	1.0%	1.0%	1.1%	1.3%
Target Price (SGD)				5.59
Upside potential				58.3%
Source: iFAST Estimates. Data as of 5 Nov 2026.

Declaration

At the time of publication, IFPL (through its connected and associated entities) holds no position in the securities mentioned in this report. The analyst responsible for this report holds shares in Alibaba (HKEX: 9988).

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation. The investment theses, ratings, price targets and conclusions remain subject to independent review and verification by the research analyst(s) to ensure accuracy and professional integrity.