September 30, 2025 09:00 PM GMT Greater China Semiconductors | Asia Pacific Cloud Semis: Demand Remains Strong "Globally" into 2026 Demand for AI in the semiconductor sector shows ongoing strength, with OpenAI and Alibaba recently releasing new deployments. Substrate shortage in 1H26 suggests a stronger 2H26 for Aspeed. Stay positive on cloud semis overall. Key Takeaways Demand for AI is unstoppable: OpenAI and NVIDIA (covered by Joe Moore; see report) jointly announced a strategic partnership to deploy at ...

October 3, 2025 02:37 PM GMT M Foundation Investor Presentation: China Internet and Other Services | Asia Pacific China Internet US Marketing Morgan Stanley Asia Limited+ Gary Yu Equity Analyst Gary.Yu@morganstanley.com +852 2848-6918 China Internet and Other Services Asia Pacific Industry View Attractive Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the ob ...

Alibaba Group Holding Limited (NYSE:BABA) is one of the AI Stocks Investors Are Watching Closely. On September 29, Morgan Stanley reiterated the stock as “Overweight” and raised its price target to $200 per share from $165. The firm cited accelerating growth in its cloud division and sustained momentum in core operations behind the raise. “We raise our cloud growth estimates to 32% for F26 and 40% for F27, driven by increased capex, model upgrades, strategic partnerships and accelerated international exp ...

Summary of Alibaba Group Holding Conference Call Company Overview - **Company**: Alibaba Group Holding (BABA.N) - **Industry**: China Internet and Other Services - **Current Market Cap**: US$408.31 billion - **Price Target**: Raised from US$165.00 to US$200.00, implying a 16% upside from the current price of US$171.91 [1][22][31] Key Points Cloud Growth and Capital Expenditure - **Cloud Growth Estimates**: Increased to 32% for F26 and 40% for F27, up from 30% for both years previously, driven by increased capital expenditure (capex), model upgrades, strategic partnerships, and international expansion [1][3] - **Capex Estimates**: Raised to Rmb130-135 billion annually for F26-28, from Rmb100-108 billion, anticipating an additional 10-15GW of data center capacity by 2032 [2][22] Demand and Product Developments - **Solid Demand**: Management reported that the number of tokens has doubled every 2-3 months, indicating strong demand for cloud services [3] - **New Developments**: Announced flagship model Qwen3-Max, partnership with NVIDIA for physical AI, and the launch of data centers in Brazil, France, and the Netherlands [3] Core Business Performance - **Customer Management Revenue (CMR)**: Expected to sustain 10% growth in F2Q and F26, supported by improved take rates and contributions from quick commerce [4] - **Operational Efficiency**: Management aims to reduce unallocated expenses (UE) losses by half in October, with estimated QC losses of Rmb35 billion in 2QF26 and Rmb80 billion for F26 [4] Financial Projections - **Revenue Estimates**: Revenue estimates for F26 and F27 increased by 1-2% due to cloud growth acceleration and sustained core business growth [5][21] - **Valuation Metrics**: DCF-based price target of US$200 implies a 17x F28 non-GAAP P/E ratio, with a SOTP valuation rising to US$250 from US$200 [5][22] Risk and Reward Analysis - **Investment Thesis**: Alibaba is positioned to benefit from the current AI cycle in China, with expectations of business reacceleration and improved monetization [27][31] - **Regulatory Environment**: The easing of the Internet regulatory environment is seen as a positive for Alibaba, enhancing its position as a proxy for China [31] Financial Summary - **Projected Revenue**: Expected to reach Rmb1,018.88 billion in F26, with net income projected at Rmb119.01 billion [21][24] - **Earnings Per Share (EPS)**: Projected GAAP EPS for F26 is Rmb50.08, with non-GAAP diluted EPS at Rmb51.20 [21][24] Additional Insights - **Market Position**: Alibaba holds the largest cloud infrastructure in China, which is expected to capture market share amid increasing AI adoption [31] - **Cash Flow and Dividends**: Strong cash flow generation capabilities and ongoing share buybacks are anticipated to provide downside support [32] Conclusion The conference call highlighted Alibaba's robust growth prospects in cloud services, driven by strategic investments and product innovations. The company is well-positioned to capitalize on the evolving AI landscape in China, with a favorable regulatory environment supporting its growth trajectory.

Summary of Alibaba Group Holding Conference Call Company Overview - **Company**: Alibaba Group Holding (BABA.N) - **Industry**: China Internet and Other Services - **Current Market Cap**: US$320.646 billion - **Price Target**: Raised from US$150.00 to US$165.00, with a SOTP valuation of US$200.00 [1][5][7] Key Points Financial Performance - **1Q26 Results**: - Total revenues increased by 2% YoY, reaching Rmb996.3 billion, in line with expectations [11] - Customer Management Revenue (CMR) grew by 10% YoY, driven by improved take rates [3][11] - Cloud revenue (Alicloud) grew by 26% YoY, exceeding market expectations [2][11] - Adjusted EBITA decreased by 14% YoY, but still beat market estimates [11] Cloud Business (Alicloud) - **Growth Expectations**: Alicloud is expected to accelerate growth to over 30% in F2Q, with AI contributing over 20% of cloud revenue [2][5] - **Strategic Partnerships**: Collaborations with companies like SAP are expected to enhance product offerings and drive demand [2] - **Profit Margins**: Margins are anticipated to remain stable at high single digits percentage [2] Quick Commerce (QC) Investments - **Investment Losses**: QC losses are projected to widen to Rmb35 billion in F2Q, marking the peak of investments [4] - **Future Focus**: Alibaba plans to shift focus to non-food categories to improve user experience and reduce losses [4] - **Growth Targets**: The company aims for incremental GMV targets of Rmb1 trillion by FY28 [4] Market Outlook - **E-commerce Growth**: CMR is expected to sustain a growth rate of approximately 10% despite a high base effect from last year [3] - **Regulatory Environment**: The easing of the Internet regulatory environment in China is seen as a positive for Alibaba [32] Valuation and Investment Thesis - **Valuation Methodology**: The price target is based on a discounted cash flow model with a WACC of 11% and a terminal growth rate of 3% [15][24] - **Investment Drivers**: - Strong cash flow generation capabilities and ongoing share buybacks provide downside support [32] - Alibaba is positioned to capture rising AI-related demand as the primary cloud service provider in China [5][32] Risks and Considerations - **Potential Risks**: - Increased competition and higher-than-expected reinvestment costs could impact profitability [41] - Weaker consumer spending and regulatory scrutiny remain concerns [41] Consensus and Analyst Ratings - **Consensus Rating**: 93% Overweight, indicating strong market confidence in Alibaba's growth potential [34] - **Analyst Estimates**: Adjusted net profit estimates for FY26 have been reduced by 11% due to widening QC investments [5][14] Additional Insights - **Stock Performance**: The stock closed at US$135.00 on August 29, 2025, with a potential upside of 22% to the new price target [7][27] - **Market Dynamics**: The company is expected to benefit from the ongoing digitalization trends and increased demand for AI solutions [32][41] This summary encapsulates the key insights from the conference call, highlighting Alibaba's financial performance, growth strategies, market outlook, and associated risks.

Investment Rating - The industry investment rating is "Attractive" [6]. Core Insights - The resumption of H20 chip sales to China is viewed as a positive catalyst for BAT (Baidu, Alibaba, Tencent) as it is expected to accelerate hyperscalers' capital expenditures in the second half of the year, driven by cloud growth [3][6]. - Tencent is highlighted as the top pick in the industry due to its strong revenue and earnings growth, particularly in AI applications and adtech upgrades [4][5]. - Alibaba is recognized as the best AI enabler, with expectations of cloud revenue growth accelerating to 22% in Q2 compared to 18% in Q1 [5]. Summary by Sections Industry Overview - The report indicates that China's AI adoption is increasing, evidenced by an 18% growth in Alicloud in Q1, with expectations for further acceleration in the coming quarters [3]. Company Specifics - Tencent has announced a capital expenditure of approximately Rmb95 billion for fiscal year 2025, while Alibaba plans to invest Rmb380 billion over the next three years [3]. - The report emphasizes Tencent's early monetization through AI adtech upgrades, which have shown consistent double-digit growth in advertising revenue [4]. - Alibaba's current share price does not reflect the value of its cloud business, which is expected to be a significant growth driver [5]. Stock Preferences - Tencent is preferred due to its robust growth in consumer-facing AI applications and limited competition risks [4]. - Alibaba is positioned well to capture rising AI demand through its cloud services, despite recent market focus shifting towards food delivery and quick commerce [5].

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the hyperscale cloud market, which is a significant segment within the Software/Cloud/Internet industry, estimated to be worth $1.3-1.5 trillion [3][4]. Core Companies Discussed - Major players in the hyperscale cloud market include Amazon (AWS), Microsoft (Azure), Google (GCP), Alibaba (Alicloud), and Oracle (OCI) [3][4]. Key Insights and Arguments 1. **Growth and Trends in Cloud Services** - Concerns about cloud optimization and market saturation have diminished, with Generative AI emerging as a primary growth driver [1][2]. - Microsoft is noted for its slowing capital expenditures (CAPEX) while experiencing accelerating revenue growth from both AI and non-AI segments [1][8]. 2. **Capacity Constraints** - Cloud Service Providers (CSPs) are facing capacity constraints, particularly related to GPUs, but are expanding data center footprints and compute capacity [2][10]. - The industry is questioning whether stable growth is the new norm and if AI is driving increased cloud IT budgets [2]. 3. **Company-Specific Performance** - **Microsoft (MSFT)**: Azure reported a 35% year-over-year growth in constant currency, with AI services contributing significantly to this growth. CAPEX is expected to moderate, and Azure is showing strength in both traditional and AI workloads [8][16]. - **Oracle (ORCL)**: OCI grew 52% year-over-year, with expectations for continued acceleration in FY26. Oracle's unique technological positioning is allowing it to capture market share in sub-markets of IaaS/PaaS [9][19]. - **Amazon (AMZN)**: AWS growth decelerated to 17% year-over-year, with AI contributions growing significantly. Supply constraints are impacting growth, but management expects improvements [10][21]. - **Google (GOOGL)**: Google Cloud grew 28% year-over-year, with strong performance in core and AI products. Margins improved despite capacity constraints [11][33]. - **Alibaba (BABA)**: Alicloud revenue grew 17.7% year-over-year, with AI-related products seeing triple-digit growth for seven consecutive quarters. However, margins declined due to increased R&D spending [13][18]. 4. **Investment Implications** - Microsoft is rated as an "Outperform" with a target price of $540, driven by its strong Azure performance and AI growth [8]. - Oracle is also rated as "Outperform" with a target price of $225, reflecting increased investor confidence in its cloud strategy [9]. - Amazon's target price is set at $235, with expectations of improved margins and growth in AI contributions [10]. - Google is rated as "Market-Perform" with a target price of $185, reflecting solid growth but facing supply constraints [11]. Additional Important Insights - The hyperscale cloud market is characterized by significant competition, with companies vying for market share in AI and traditional cloud services [2][4]. - The long-term outlook for the industry remains positive, with expectations for continued growth driven by advancements in AI and cloud technology [4][5]. - The conference highlighted the importance of understanding the capital intensity of IaaS/PaaS and the implications of AI-driven CAPEX on overall profitability [5][19]. This summary encapsulates the key points discussed in the conference call, providing insights into the current state and future outlook of the hyperscale cloud market and its major players.