Key Takeaways:
- Citi trims Alibaba target to $190 from $192, keeps Buy rating
- June-quarter net profit fell 41.7% as capex surged 75% to RMB67.7B
- Cloud revenue forecast to grow 50% in September quarter
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Citi trims Alibaba target to $190, keeps Buy on AI cloud growth
Citi trimmed its Alibaba price target to $190 from $192 while keeping a Buy rating, calling the Chinese e-commerce giant China's standout AI play.
Citi said management is confident in its decision to aggressively raise investment to capture demand in the AI sector, viewing the heavy-asset outlays as a controllable cash-flow trade-off with a measurable payback period, according to a report dated Thursday.
The broker forecast cloud revenue for the September quarter to grow 50 percent year over year to 59.7 billion yuan, and sees cloud revenue rising 51 percent, 48 percent and 42 percent in fiscal 2027 through 2029. It cut its H-share target to 189 Hong Kong dollars from 191.
Alibaba shares opened about 5.4 percent lower Thursday as investors weighed the jump in AI spending against accelerating cloud growth. The $190 target implies roughly 46 percent upside from the stock's recent level near $130.
Alibaba's June-quarter non-GAAP net profit fell 41.7 percent year over year to 20.6 billion yuan, missing the broker's and market's expectations. Capital expenditure surged 75 percent year over year to 67.7 billion yuan in the quarter, the report showed.
Citi forecasts capex of 227.7 billion yuan, 201 billion yuan and 180 billion yuan for fiscal 2027 through 2029. Management forecast cloud revenue growth to accelerate further, with EBITA margin showing a steady uptrend over the next few quarters, while e-commerce EBITA stays stable and losses in the Quick Commerce business continue to narrow.
Jefferies separately raised its Alibaba H-share target to 184 Hong Kong dollars, citing a sustained acceleration trend in the cloud business. Alibaba's Qwen AI models and cloud infrastructure position it to benefit as Chinese enterprises adopt generative AI, a segment where Nvidia-supplied chips underpin capacity expansion.
Analysts broadly backed Alibaba after the results, with attention on cloud acceleration rather than the profit miss, even as the stock's slide showed the market's scrutiny of AI spending. The modest target cut with a maintained Buy rating reflects Citi's conviction in Alibaba's AI positioning despite near-term profit pressure. Investors will watch the September-quarter cloud print for confirmation of the 50 percent growth forecast.
This article is for informational purposes only and does not constitute investment advice.
