To The Moon

1. Alibaba’s Position in AI & Cloud

Alibaba Cloud as a Core Growth Driver

Alibaba Cloud is the largest cloud provider in China by market share. It has a strong foothold in infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS), powering a significant portion of Chinese internet traffic, e-commerce, and enterprise workloads.

Goldman Sachs’ recent re-rating — valuing the cloud business alone at $43 per ADR — underscores the recognition of cloud as a stand-alone profit engine.

AI Integration into the Cloud Ecosystem

Alibaba has been rolling out Qwen large language models (LLMs) and embedding them into DingTalk (workplace app), Tmall/Taobao (e-commerce), and enterprise solutions. This strategy mirrors how Microsoft leverages Azure with OpenAI, aiming to create a flywheel where cloud + AI reinforce one another.

Self-Developed Chips

Reports indicate Alibaba and Baidu are partially replacing Nvidia GPUs with self-developed chips (e.g. Hanguang AI chip). This reduces dependency on U.S. suppliers amid export restrictions and could strengthen margins and strategic resilience.

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2. Strengths of the AI Growth Story

Domestic Demand Tailwinds: China’s AI adoption is accelerating across finance, retail, and government services. Alibaba’s ecosystem positions it to capture this demand.

Vertical Integration: Unlike Western peers who primarily provide cloud platforms, Alibaba can embed AI into commerce, logistics, payments, and media. This creates more touchpoints and monetisation channels.

Government & Regulatory Alignment: Beijing is supportive of domestic AI and cloud development, which can benefit Alibaba compared to foreign players.

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3. Key Risks & Challenges

Competitive Intensity: Tencent, Baidu, and Huawei are heavily investing in AI + cloud. Alibaba must out-innovate peers to sustain share.

Regulatory Uncertainty: China’s evolving rules on AI safety, data security, and cloud services can introduce compliance costs or limit monetisation.

Profitability Lag: While cloud revenues are growing, margins remain thinner than global peers (AWS, Azure). AI integration may take time before turning into significant profit uplift.

Geopolitical Factors: U.S. restrictions on advanced semiconductors pose risks for AI model training and scaling.

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4. Valuation & Outlook

With Goldman Sachs at $179 and Barclays at $190, the market is gradually shifting back toward a re-rating thesis after years of depressed multiples from regulatory crackdowns.

The bullish case assumes Alibaba Cloud continues double-digit growth, AI monetisation ramps up across business units, and margins improve with scale.

The bear case is that intense competition + regulatory limits cap upside, leaving Alibaba undervalued relative to U.S. peers, but fairly priced in its domestic context.

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✅ My View: Alibaba’s AI story is credible and strategically sound, particularly given its ecosystem advantages and government support. However, unlike Nvidia or Microsoft, Alibaba faces domestic competition and policy constraints that may temper the speed of value creation. I see it as a measured growth story — with AI driving long-term re-rating potential, but with volatility in execution.