BABA makes AI investments stock analysts want to see
Alibaba shares have accelerated their gains this month as the Chinese e-commerce giant has released a succession of new artificial intelligence models. “Alibaba’s approach of having a large range of AI models [is] a smart strategic play that sets it apart from other players and designed for efficiency,” said Brian Tycangco, an analyst at Stansberry Research. “A single large model that carries enormous features may not be practical for AI markets that don’t require complex search and compute,” he said. “This makes it too expensive for a good portion of the addressable market that needs an AI model for basic tasks.” Alibaba’s Hong Kong-listed shares have climbed more than 14% in April, putting them on pace for their best month since January — when they rose by more than 18%. The U.S.-traded shares are also tracking for their best month since January. “BABA appears to be accelerating its AI investments; We believe the stepped-up investments are necessary in its race to reach and maintain dominance in AI,” Bernstein analysts said in an April 13 report, reiterating an overweight rating. They have a $186 price target on Alibaba’s U.S.-listed shares. Bernstein analysts estimate Alibaba’s AI investments in the March quarter nearly doubled from the prior quarter to around 20 billion yuan ($2.93 billion). “BABA management recently guided to reach $100bn in annual revenues from AI and cloud in the next five years. If that goal can be achieved, the current investments appear to be more than justified.” They didn’t appreciate Alibaba spending on free milk tea in a marketing campaign for its AI app Qwen . But they were optimistic that the company’s cloud business would benefit from its ability to raise fees. In contrast to free-to-use chatbots, tools such as the OpenClaw AI agent or video generation have increased locals’ incentive to pay for AI capabilities. Alibaba’s latest AI model, announced Thursday, is a model called Happy Oyster that can create the 3D environments used in gaming. It’s a so-called world model that analysts say can replicate the real, physical world better than existing chatbot models. Days earlier, Alibaba confirmed its navigation unit is developing a four-legged robot. The company in February released an AI model targeted at training robots . The company earlier this month also revealed it is behind an AI video generation model HappyHorse that has surpassed ByteDance’s viral Seedance 2.0 in non-audio video generation capabilities, according to rankings by Artificial Analysis. “We believe the successful development and release of the HappyHorse-1.0 video model will likely be viewed as an important achievement for Alibaba’s model stack, as video generation expertise in China was previously dominated by ByteDance and Kuaishou,” Citi analysts said in an April 10 report. They have a price target of $205 on Alibaba’s U.S.-listed shares, which they rate buy. “Since video models require substantially more tokens than text-based models, we believe the growing popularity of the HappyHorse model could translate to higher token monetization and greater cloud revenue opportunities,” the Citi analysts said. “That said, the potential success of HappyHorse also suggests that Kuaishou ‘s Kling will face intensified competition in the video model landscape.” Kuaishou’s Hong Kong-traded shares have struggled to turn around after nearly halving in price since a high in January. Happy Horse’s release could also “broaden enterprise AI opportunities” for Alibaba, Bank of America analysts said in an April 10 report. They called the company “one of the most compelling AI plays in China .” BofA rates Alibaba a buy, with a price target of $172, for upside of 19% from Thursday’s close. Privately held ByteDance has in recent months increasingly been seen as an all-around leader in AI in China, with its popular Doubao chatbot, Seedance video generation tool and cloud computing services. The company’s valuation has reportedly surged above $600 billion , doubling in less than a year. In contrast, Alibaba’s shares are trading near where they were 12 months ago. The company has also invested widely in startups , such as leading a $290 million investment round earlier this month to back a Chinese startup that is building its own a world model. Back in March, JPMorgan analysts said that based on an Alibaba investor meeting, the company’s “strategic ambition is becoming easier to understand.” “Alibaba management does not want investors to value cloud as a traditional infrastructure business alone, but as a broader AI stack with growing monetization potential through model services, token consumption and application-layer usage,” the JPMorgan analysts said. “That is a constructive framing for the medium term, because it expands the set of value drivers investors should focus on.” — CNBC’s Michael Bloom contributed to this report.
