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E-commerce giant Alibaba Group Holding Limited (BABA) has grown beyond online retail to become a leading company in artificial intelligence (AI), data infrastructure, and digital innovation. Essentially, the company is spending a lot of money to be at the forefront of the AI race. In that effort, the company launched a new AI model for video game development.
“Happy Oyster” is a “world model” that can generate 3D simulation videos of the real world. This puts Alibaba in direct competition with gaming giant Tencent Holdings (TCEHY). Alibaba explained that unlike traditional AI video tools that request prompts, then render, and ultimately produce a clip, Happy Oyster continuously listens and responds, allowing the scene to adapt in real-time and evolve as it progresses.
The model was born out of “Alibaba Token Hub,” a new unit that integrates AI research (including the Qwen family of large-scale language models), consumer apps, and related AI products under the leadership of CEO Eddie Wu.
With the launch of this new model, does Alibaba stock become a “buy” now?
How is Alibaba’s business situation?
Chinese technology giant Alibaba Group operates one of the world’s largest e-commerce platforms. The company’s platform connects buyers, sellers, businesses, and service providers through a wide range of digital platforms. Headquartered in Causeway Bay, Hong Kong, the company has a market capitalization of $330.87 billion.
Alibaba stock has risen 29.52% over the past 52 weeks, but is down 3.8% this year. Investors appear concerned about the company’s short-term profits, even as the company continues to invest in AI and cloud and stay ahead of competitors in China’s e-commerce space. Alibaba stock has fallen 26.8% since its 52-week high of $192.67 in October 2025.
The 14-day RSI of 63.73 indicates that the stock is closer to overbought territory than oversold territory despite the recent decline. On a forward-adjusted basis, Alibaba’s price-to-earnings ratio is 24.87x, higher than the industry average of 17.21x.
Alibaba reports sales growth, but profits slump due to AI and quick commerce spending
Alibaba’s revenue rose modestly in the December quarter to 284.84 billion yuan ($41.76 billion at current exchange rates), up 2% year-on-year. However, this fell short of the 290.7 billion yuan ($42.62 billion) that Street analysts had expected, according to data compiled by London Stock Exchange Group.
The company noted improved unit economics for its quick commerce business, with average order value increasing month-over-month for the quarter. The number of monthly active customers on the Taobao app increased by double digits due to “increased mindshare” and scale expansion of the quick commerce division.
But the biggest bright spot has been Alibaba’s AI and cloud business, with the latter continuing to see accelerated growth, with its AI-related products posting triple-digit revenue growth for 10 consecutive quarters.
Meanwhile, costs are weighing on Alibaba’s profitability. Due to quick commerce, user experience and technology costs, the company’s operating profit decreased 74% year-on-year to RMB 10.65 billion ($1.56 billion), and adjusted EBITA decreased 57% year-on-year to RMB 23.4 billion ($3.43 billion).
For the fiscal year ending in March, Wall Street analysts expect the company’s EPS to be $4.39, representing a 46.9% year-over-year decline, and for the following fiscal year to increase 46.5% to $6.43.
What do analysts think about Alibaba stock?
Barclays analysts this month maintained a bullish “overweight” rating on Alibaba stock, but lowered their price target to $186 from $190. However, this target reduction was not based on immediate concerns. It was a disciplined reassessment. Barclays analysts still think Alibaba needs to accelerate its investments to gain an edge in AI.
Susquehanna analysts maintained a “positive” rating on Alibaba stock, but lowered their price target from $190 to $170 after Alibaba’s third-quarter earnings fell short of expectations. Susquehanna analysts see profitability coming under pressure, especially from increased investment in AI. However, they also believe that Alibaba has a strong position in China’s e-commerce, cloud, and AI markets, which underpins its long-term growth.
Alibaba is highly regarded on Wall Street, with analysts giving the company an overall consensus rating of Strong Buy. 25 analysts have rated the stock, of which 19 have rated it a “strong buy,” 1 has rated it a “fair buy,” and 5 have rated it a “hold.” The consensus price target is $182.33, representing a 29.3% upside from current levels. Additionally, the street price target of $206.10 implies an upside of 46.16%.
Important points
While Alibaba’s AI + cloud spending will put pressure on margins in the short term, it could be an important growth driver in the long term. The company is pledging billions of dollars in investments (similar to what’s happening with big tech companies), primarily aimed at transitioning from an internet retail giant to a leader in AI. The company has an ambitious goal of quintupling its annual cloud and AI revenue to $100 billion within five years, and is reportedly starting to recoup its AI investments in its e-commerce business. Therefore, it may be wise to consider Alibaba as a “buy” right now.
On the date of publication, Anushka Dutta did not have any positions (directly or indirectly) in any securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see the Barchart Disclosure Policy here.
