Why I'm Cautiously Optimistic About Alibaba Stock

Core Viewpoint - Alibaba is showing early signs of strategic progress that could lead to long-term growth, despite previous challenges and risks [2] Group 1: Growth Drivers - Alibaba Cloud reported a 26% year-over-year revenue increase to RMB 33.4 billion ($4.7 billion) in fiscal Q1 2026, significantly outpacing the overall revenue growth of 10% [5] - AI-related revenue within Alibaba Cloud has been growing at triple-digit rates for eight consecutive quarters, now accounting for over 20% of external revenue [5][6] - The shift towards AI workloads is expected to enhance revenue per customer, improve margins, and foster stronger client relationships, positioning Alibaba as an AI platform rather than just a cloud provider [6] Group 2: Strategic Investments - Alibaba is developing its own AI inference chips to reduce reliance on U.S. technology, which is crucial amid export restrictions [7][9] - This move not only mitigates supply chain risks but also allows Alibaba to scale AI services effectively, enhancing its ability to commercialize AI across various business segments [9] Group 3: Market Sentiment - Analysts from Mizuho, Bernstein, and Citi have raised price targets or reiterated buy ratings for Alibaba, citing cloud growth and AI adoption as key catalysts [10] - The stock currently trades at a price-to-sales ratio of 2.4 times, significantly lower than its peak valuation of 15.5 times, indicating potential upside for investors [13] - A shift in sentiment among analysts may signal a change in how investors perceive Alibaba's future potential, provided the company can execute effectively in the coming quarters [12]