Wall Street comments on Alibaba's financial report: Short-term "profit reset" is for long-term AI explosion

Faced with Alibaba's latest financial report of "increased revenue but decreased profit," Wall Street investment banks generally pointed out that the short-term pressure on profits is an inevitable result of increased AI investment, and the market should focus on its long-term monetization potential of "cloud + generative AI."

According to news from the Chasing Wind Trading Desk, on March 20, JP Morgan and Goldman Sachs successively released analysis reports on Alibaba's performance for the third quarter of fiscal year 2026. The JP Morgan report noted that Alibaba's fourth quarter "overall revenue performance is acceptable... but profit performance is significantly below expectations." Specifically, "adjusted net profit decreased by 67% year-on-year to 16.7 billion yuan, which is 40%/44% lower than JP Morgan's forecast/market consensus."

The core reason for the significant pressure on profits is cost expansion. The report believes that "the profitability of various business segments is generally below expectations, offsetting the positive factors on the revenue side, reflecting that the company's cost pressure is greater than expected, and the short-term profit trend is weak." This includes the new category "All Other Businesses," which encompasses AI layout.

Although the short-term profit logic is under pressure, the market's most concerned business logic has not collapsed, and the core narrative has not been overturned. JP Morgan emphasized: "This quarter did not shake the core narrative, namely the cyclical slowdown in e-commerce monetization and the steady demand for AI/cloud."

Goldman Sachs Defines "Profit Reset," Focuses on Full-Stack AI Capability

Goldman Sachs provided a clearer qualitative assessment of the strategic significance of Alibaba's financial report in its research report.

Goldman Sachs stated that it views this financial report as a "key earnings reset event." The firm believes that the decline in profits is "due to investments in the Tongyi Qianwen (Qwen) AI model/application, which may continue to lead to increased losses in the 'All Other' business segment in the coming quarters."

Beneath the surface of profit reset, positive changes are occurring in business lines. The report pointed out that the market has already seen "encouraging signs of inflections."

These signs are specifically reflected in three aspects: first, "cloud revenue is further accelerating," second, "core e-commerce customer management revenue (CMR) is returning to normal from the seasonal low in December," and third, "the unit economic benefits of instant retail continue to improve."

AI Token Consumption Surges 6 Times, Cloud Business Welcomes Growth Inflection Point

Behind the short-term profit pain, Wall Street sees explosive growth data in AI business.

In terms of commercialization data, JP Morgan pointed out, "external customer revenue from cloud business increased year-on-year growth from 29% in the previous quarter to 35%... with AI-related product revenue still maintaining triple-digit growth."

Goldman Sachs is particularly focused on the strategic progress of Alibaba's newly established "Alibaba Token Hub" business (i.e., "Token Business Group"). This business group aims to integrate models and application layers "to drive growth in token consumption."A highly explosive piece of data is: "Management shared that the Token consumption of its BaiLian API business grew sixfold in March compared to December."

With such growth expectations, Goldman Sachs pointed out that management has set clear long-term goals: "To exceed $100 billion in annual AI MaaS and cloud external revenue within five years." This implies a compound annual growth rate of over 40%, achieving 6 to 7 times growth from the current revenue scale of over 100 billion RMB for Alibaba Cloud.

Based on strong AI demand, the bank has raised its expectations for Alibaba Cloud's business: "Given the strong momentum of MaaS (Model as a Service) revenue driven by AI demand and the company's ongoing commitment and focus on external customers, we now forecast a growth rate of 40%/35% for the cloud business in the March quarter/FY2027."

In light of future market pricing, JP Morgan believes: "The stock is expected to weather short-term profit pressures and will see a valuation upgrade as the monetization inflection point of 'cloud + generative AI' becomes clearer."

Underlying Computing Power: PingTouGe Chip Annual Revenue Reaches 10 Billion Scale

In addition to cloud software and models, Alibaba's layout in underlying hardware has also attracted Wall Street's attention. Goldman Sachs delved into the progress of Alibaba's self-developed PingTouGe (T-Head) chip business.

Goldman Sachs relayed the company's disclosed data: "The total shipment of PingTouGe chips has exceeded 470,000 units, with the latest annual revenue reaching 10 billion RMB, and 60% of the chips are used by external customers." This constitutes Alibaba's "unique AI full-stack capabilities."

Regarding the strategic value of this business, Goldman Sachs believes it is Alibaba's core moat: "We continue to view Alibaba's self-developed chips, the largest cloud infrastructure in China, and the cutting-edge Qwen model as its unique differentiated advantages compared to other Chinese hyperscale cloud vendors." Furthermore, Goldman Sachs mentioned, "The company has indicated that it does not rule out the possibility of eventually listing this business, but has not provided a timeline."

E-commerce and Instant Retail: CMR Recovers, Clear Profit Timeline

Returning to the core business, the market is highly concerned about the customer management revenue (CMR) of Taobao and Tmall, as well as the cash burn situation of instant retail (Quick Commerce).

Goldman Sachs relayed management's expectations, indicating that "the CMR growth rate for the March quarter is expected to accelerate to a mid-single-digit percentage (after a seasonal low of 1% in the December quarter)."

For the instant retail business that has been dragging down profits, Wall Street has provided the company with a clear stop-loss and profit timeline. Goldman Sachs pointed out: "The company's goal is to achieve 1 trillion RMB in instant retail GTV (Gross Transaction Value) in FY2028, aiming for profitability in FY2029, driven by improved fulfillment logistics efficiency, optimized order structure, and strong customer retention rates."

Institutional Consensus: Risk/Reward Tilted Upward

In the face of stock price fluctuations following the earnings report, both investment banks reiterated their bullish stance, believing that the short-term decline in profit margins is a reasonable price to pay to capture opportunities in the AI eraJP Morgan summarized its investment logic by stating: "Overall, we believe the risk/reward is skewed to the upside, as the upside potential of AI-driven cloud business and platform optionality outweighs the short-term investment drag." The institution further expects, "As generative AI workloads expand from pilot projects to broader deployments, providing concrete evidence of Alibaba's ability to capture and materialize AI-driven demand in China, Alibaba Cloud's revenue will continue to accelerate in the coming quarters."

Goldman Sachs bluntly pointed out the opportunities brought by market volatility: "Despite mixed performance triggering an initial negative stock price reaction (a drop of up to 9%), we believe that any stock price weakness creates a more favorable entry point for Alibaba."