Alibaba: Expecting Strong Earnings Growth In Q2, Cloud Margin Continues To Improve

Summary Alibaba is upgraded to Strong Buy after a 16% correction post-Q1 earnings miss, with forward P/E compressed to 16.5x, which seems overdone. AI Cloud revenue surged 45% YoY; maintaining over 40% and an improved non-GAAP EBITA margin are expected in the next several quarters. Traditional China e-commerce remains sluggish, with management prioritizing steady profit over growth, dampening overall revenue acceleration. I expect a strong growth inflection in earnings in Q2 FY2027 due to a low comparable basis and improved AI profitability; FCF will continue to be under pressure. Nearly half of the RMB 360 billion AI capex has been completed, and management aims for a 2–2.5 year payback on AI investments. Ayman Zaid/iStock Editorial via Getty Images Nearly 20% Selloff Is Overdone Alibaba Group Holding Limited ( BABA , OTCPK:BABAF ) has been down 18% since its pre-1Q earnings high, underperforming the KraneShares CSI China Internet ETF ( KWEB ) by 8%. The This article was written by Johnny Zhang, CFA 2.81K Followers Follow I'm specialized in fundamental equity research, global macro strategy, and top-down portfolio construction. Analyst’s Disclosure: I/we have a beneficial long position in the shares of BABA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.