Alibaba: Strong AI cloud, weak e-commerce; Nomura keeps Buy but cuts target price

Overview

This report is Nomura's earnings preview and valuation update on Alibaba. The core view is that the company has two simultaneous stories: on the one hand, its China e-commerce business remains under pressure from macro weakness, a high base, and competitive intensity; on the other hand, AliCloud and AI-related capabilities are sustaining strong growth, and the market has not yet fully reflected their long-term value.

Core views

Nomura cuts FY27F consolidated EBITA by 15% to CNY101bn, mainly reflecting China e-commerce profit coming in below prior expectations; however, it maintains a Buy rating because AliCloud's revenue and profit growth should offset the weakness in e-commerce and gradually become the long-term profit driver. The current 13x P/E is seen as underestimating Alibaba's potential in cloud computing and AI.

Analysis framework

The report combines 618 promotion-season industry data, channel checks, segment operating forecasts, and an SOTP valuation framework to assess China e-commerce, Quick Commerce loss narrowing, AliCloud growth, and the value of non-core assets. On valuation, China e-commerce is valued on FY27F P/E, AliCloud on FY28F P/S, and non-core assets on net asset value.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  Values China e-commerce, AliCloud, and non-core assets separately and then adds them together to derive the USD 178 target price.

• Relative valuationP/E

  Price-to-earnings ratio

  China e-commerce is valued at 5x FY27F P/E, implying a 22x CY27F P/E at the target price, versus about 13x currently.

• Relative valuationP/S

  Price-to-sales ratio

  AliCloud is valued at 7x FY28F P/S, corresponding to a USD270bn segment value.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BABA.US

  Covered company

  Strengths

  AliCloud growth is strong, with relatively complete full-stack capabilities across AI chips, AI infrastructure, applications, and LLMs; Quick Commerce losses are expected to narrow; valuation offers substantial upside to the target price.

  Weaknesses

  China e-commerce growth is weak, 618 promotion performance was disappointing, CMR may miss consensus; FY27F earnings forecasts have been cut.

  Comparison

  Compared with the Nasdaq Composite as the benchmark, the report's Buy rating implies outperformance over the next 12 months.

  Risks

  Margin pressure from heavier investment; payment and internet finance regulatory risks; continued macro and retail weakness.

• 09988.HK

  Hong Kong-listed security of the same company

  Strengths

  Fundamentally driven by the same factors as BABA.US, benefiting from the long-term value of AliCloud and AI.

  Weaknesses

  Also exposed to weak China e-commerce and competitive pressure.

  Comparison

  The report primarily discloses the BABA US perspective; the Hong Kong-listed security can serve as a related mapping for the same issuer.

  Risks

  Valuation discount, market liquidity, and cross-market sentiment swings may affect performance.

Key data

• RatingBuyBuy rating maintained.
• Target priceUSD 178.00Cut from USD 207.00.
• Closing priceUSD 102.60As of June 23, 2026.
• Implied upside+73.5%Calculated from the target price and closing price.
• FY27F consolidated EBITACNY101bnForecast cut by 15% to reflect weaker China e-commerce profits.
• FY27F revenue growth10% y-yExpected to be supported by strong AliCloud performance.
• FY27F consolidated EBITA growth32% y-ySupported by a sharp narrowing in Quick Commerce losses.
• Quick Commerce lossCNY14bnThe June-quarter loss is expected to narrow significantly from CNY18bn in the prior quarter.
• AliCloud revenue growth41% y-yJune-quarter growth is expected to exceed Bloomberg consensus of 37.5%.
• AliCloud EBITA margin11%8.8% in the same period last year.
• China e-commerce valuationUSD89bnBased on 5x FY27F P/E.
• AliCloud valuationUSD270bnBased on 7x FY28F P/S.
• Non-core asset net valuationUSD40bnIncludes the international e-commerce business.

Impact & implications

The investment implication is that near-term earnings revision pressure mainly comes from China e-commerce, but the medium- to long-term re-rating trigger comes from AliCloud revenue growth, margin expansion, and the realization of full-stack AI capabilities. If cloud and AI continue to outperform, the market may reassess Alibaba's long-term earnings structure; otherwise, further deterioration in e-commerce competition or investment spending would weigh on target price realization.

Risks

• China e-commerce sales are weaker than expected, with CMR and segment EBITA remaining under pressure.
• Quick Commerce or other new business investments intensify, leading to margin compression.
• Payment and internet finance regulatory risks could affect Alibaba's core business and its stake value in Ant Group.
• Competition in the China LLM market is intense, creating uncertainty around the return on AI investment.
• The macro consumption environment and high-base effect may continue to weigh on retail growth.

What to watch

• Whether AliCloud revenue growth and EBITA margin in the June 2026 quarter meet the report's expectations.
• Whether China e-commerce CMR reports approximately 8% y-y decline, and how it compares with Bloomberg consensus.
• Whether Quick Commerce losses narrow from CNY18bn in the previous quarter to about CNY14bn.
• The competitive landscape after 618, especially the GMV performance gap between Douyin and platforms such as Alibaba.
• The release pace of flagship LLMs and agentic capabilities, and the extent to which AI business drives cloud revenue.
• The sustainability of 10% FY27F revenue growth and 32% EBITA growth.