Zhi Tong Cai Jing·2025-10-10 14:14Core Viewpoint - Despite recent stock price declines, Bank of America maintains a bullish outlook on Alibaba, reiterating a "buy" rating with a target price of $200 (approximately HKD 195) [1][3]. Group 1: Growth Drivers - The report highlights that Alibaba's cloud business is expected to continue its high growth trajectory, with revenue growth forecasted to increase to 30% year-on-year, up from 26% in the previous quarter [4]. - The compound annual growth rate (CAGR) for the cloud business from fiscal years 2026 to 2028 has been raised from 32% to 35%, reflecting confidence in AI-driven demand for computing power [4]. - The e-commerce segment is projected to maintain a steady growth rate of 10% in customer management revenue, driven by the adoption of AI marketing tools and increased traffic from instant retail [5]. Group 2: Profitability Outlook - The report indicates that the September quarter will represent a temporary bottom for Alibaba's profits, primarily due to increased investments in instant retail, with losses expected to reach RMB 36 billion [6]. - Short-term losses are anticipated to improve, with expectations of narrowing losses to RMB 18 billion in the December quarter, while maintaining a daily order volume of 70 million [6]. Group 3: Financial Adjustments and Valuation - Bank of America has adjusted its net profit forecasts for fiscal years 2026-27 down by 3%-4% due to costs associated with instant retail and AI, but has raised revenue and net profit expectations for fiscal year 2028 by 1% [7]. - Revenue is projected to reach RMB 1.05 trillion in fiscal year 2026 and RMB 1.39 trillion in fiscal year 2028, with a CAGR of approximately 10% [7]. - The current price-to-earnings ratio for fiscal year 2026 is about 30.41 times, expected to decrease to 16.74 times by fiscal year 2028, indicating an improving alignment between valuation and earnings growth [7]. Group 4: Long-term Competitive Position - Bank of America believes Alibaba is in a critical phase of "short-term investment for long-term growth," with the cloud business benefiting from AI demand and the e-commerce segment enhancing its omnichannel capabilities [8]. - Despite short-term profit drag from instant retail, the path to loss improvement is clear, and Alibaba's accumulated strengths in AI technology and e-commerce infrastructure position it as a leading AI-enabled e-commerce platform in China [8].