Will Rising Capex Pressure Hurt Alibaba's Margin and AI Strategy?

Core Insights - Alibaba Group Holding (BABA) is committing RMB 380 billion to infrastructure expansion over the next three years, which may negatively impact profitability due to margin compression and uncertain returns from technology investments [1][9] Financial Performance - The company anticipates a 10% growth in customer management revenue (CMR) for fiscal 2026, primarily driven by software service fees and the Quanzhantui advertising tool, but profitability trends remain concerning [2][9] - Cloud Intelligence Group's adjusted EBITA margins are projected to stay in the high single digits through fiscal 2026, as lower utilization rates counteract benefits from AI product adoption [2][9] - The Zacks Consensus Estimate for fiscal 2026 earnings is $6.48 per share, indicating a 28.08% year-over-year decline [13] Competitive Landscape - Tencent and Baidu exhibit different strategies in balancing AI investment with profitability; Tencent reduced capital expenditure by 24% year-over-year while maintaining high operating margins, whereas Baidu faced negative free cash flow and significant operating losses despite AI revenue growth [6] Market Position - BABA shares have increased by 34.3% over the past six months, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector, which grew by 5.5% and 6.3% respectively [7]