Alibaba’s Strategic Pivot Faces Mounting Analyst Scrutiny

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The aggressive investment strategy pursued by Chinese e-commerce titan Alibaba is drawing increased skepticism from market observers, even as the broader Wall Street consensus remains largely favorable. This shift in sentiment was highlighted on Tuesday when US investment boutique Arete downgraded its rating on the company's shares from "Buy" to "Hold." Concurrently, Arete slashed its price target from $191 to $172, citing concerns that massive capital outlays for artificial intelligence infrastructure and quick-commerce delivery services are eroding profitability more severely than anticipated.

The financial strain from these investments was laid bare in the company's November quarterly report for fiscal Q3 2025. Net income plummeted by 72% year-over-year. This dramatic decline was primarily attributed to aggressive spending on AI development and the expansion of its express delivery network. The sale of business segments, including Sun Art and Intime, also negatively impacted the bottom line.

Amid these pressures, certain business units showed robust growth. The cloud computing division reported a significant revenue surge of 34.5%. Furthermore, AI-related revenues have now achieved triple-digit growth rates for six consecutive quarters. Within its core China commerce segment, customer management revenue increased by 10%, although its adjusted EBITDA in this area collapsed by 78%.

A Divided Street: Optimism Versus Patience

The analyst community presents a split picture. Despite Arete's downgrade, 18 out of 20 covering analysts maintain "Buy" or equivalent recommendations. Firms like JP Morgan and Citi have set bullish price targets of $230 and $225, respectively. The consensus target stands near $201, implying a potential upside of approximately 28% from current levels. Proponents of this optimistic view argue that Alibaba's estimated $50 billion commitment to AI and cloud computing is a necessary long-term play to establish high-margin future revenue streams.

The central debate, however, revolves around the timeline for these investments to translate into sustainable profits. Skeptics question when the payoff will materialize. An additional competitive headwind comes from the integration of its Ele.me delivery service into the Taobao platform, which intensifies its costly battle for market share against rivals Meituan and Pinduoduo.

Early Traction in AI Initiatives

There are early indicators that Alibaba's AI offensive is gaining user traction. In November, its flagship AI application, Qwen, attracted 18.34 million monthly active users, representing a monthly increase of 149%. The company has also secured strategic partnerships, serving as the cloud provider for Ryt Bank and the energy arm of a major Malaysian automotive group. In a move to spur adoption, Alibaba is offering free access to its Qwen and Wan AI models in Hong Kong.

Investor focus will now turn to the next quarterly results, scheduled for February 19, 2026. These figures are expected to provide critical insight into whether the current strategy is yielding results, with particular attention on cloud segment margins and progress in monetizing AI services. Until then, the company's ongoing share repurchase program, which still has $19.3 billion remaining under its authorization, serves as a key support mechanism for shareholder value.