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This Week's Bonus Story Alibaba Stock Is Getting Hit Again, but Qwen and Cloud Growth Are SurgingAuthor: Leo Miller. Date Posted: 3/20/2026. 
Key Points - Alibaba’s latest quarter showed modest revenue growth but a sharp drop in adjusted profit as the company continued spending heavily to defend its China commerce position.
- Cloud revenue growth accelerated, reflecting strong demand for AI-related products, even as broader concerns persist about talent retention and longer-term AI execution.
- Alibaba’s outlook hinges on whether near-term margin pressure from fast delivery and other initiatives can be balanced by sustained cloud and AI monetization.
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For Chinese e-commerce giant and cloud provider Alibaba Group (NYSE: BABA), the past six months have not been kind. Over that period, Alibaba shares have fallen more than 30%. Market-share losses in Chinese e-commerce and questions about the firm’s artificial intelligence (AI) leadership have been major headwinds for the stock. The decline was worsened by Alibaba’s most recent earnings report, which shaved roughly 7% off the share price. Still, Alibaba remains one of China’s most important companies and a meaningful player in AI through its cloud business. That combination is hard to ignore despite the rough patch. The latest quarter clarified the company’s strategy: Alibaba is spending aggressively to defend its commerce franchise now, betting that accelerating cloud and AI demand can restore profitability over time. Margin Pressure Deepens as Fast Delivery Spending Rises In fiscal Q3 2026, Alibaba reported revenue of $40.73 billion, up 2% year-over-year (YOY), missing consensus of $40.95 billion (about 3% growth). The bigger issue was earnings. Alibaba posted adjusted earnings of $1.01 per ADR, missing the analyst estimate of $1.65 and down 67% from a year ago. An ADR, or American depositary receipt, is a bank-issued U.S. security that represents Alibaba’s underlying shares and lets U.S. investors trade the stock in dollars on U.S. exchanges. Management blamed the profit decline on heavier spending for quick commerce, user-experience initiatives and technology, with improved cloud performance only partially offsetting the impact. The company also faces a tougher competitive environment in China’s e-commerce market, which has raised the cost of defending its market share. PDD (NASDAQ: PDD) has been gaining ground in the value-shopping segment, while ByteDance’s Douyin (the Chinese version of TikTok) has become a leader in discovery-based shopping, where users buy after seeing products in social feeds. Meanwhile, Meituan (OTCMKTS: MPNGF) remains dominant in food delivery and related services. Alibaba is still the largest player but is investing heavily to protect that position, and those investments are weighing on profitability. Quick commerce—delivering products in an hour or less—has become a cornerstone of its e-commerce strategy. There were some positive signs: quick commerce revenue rose 56% YOY in the quarter. The company added 150 million annual active customers (AAC) in 2025—users who made at least one purchase during the year—but these additions tend to be lower quality, making smaller, less frequent purchases. Alibaba is betting on winning this battle over the long run and does not expect its quick commerce business to be profitable until fiscal 2029. Cloud Growth Accelerates as Qwen Sees Strong Developer Adoption Alibaba’s Cloud Intelligence Group was one of the quarter’s clearest positives. Revenue rose 36% YOY to $6.19 billion, marking the unit’s ninth consecutive quarter of accelerating growth and its fastest pace in three years. Management cited AI demand as a key driver, noting that AI-related product revenue grew at a triple-digit rate for the 10th straight quarter. The segment also remained profitable, with an adjusted EBITA margin that was described as “relatively stable” at 9%. The company’s foundational model, Qwen, is one of the most widely used open-source models, with over 1 billion downloads on Hugging Face. Hugging Face is a platform where developers can download and fine-tune models to build applications. That open-source adoption matters because broader developer usage can translate into demand for inference and tooling within Alibaba’s cloud ecosystem. As more developers build on Qwen, usage shifts toward running and serving those models at scale through inference and related services. Hugging Face data also show Qwen is a popular base for customization, with developers creating more than 113,000 derivative models tuned from Qwen. That is more than the next two closest competitors, Alphabet (NASDAQ: GOOGL) and Meta Platforms (NASDAQ: META), combined. The takeaway: Qwen has gained meaningful traction with developers, and that traction can support further growth in Alibaba’s cloud business as more applications are deployed and used. Alibaba has set ambitious targets for its cloud and AI efforts. CEO Eddie Wu said the company is targeting more than $100 billion in combined external cloud and AI revenue within five years, underscoring how central AI monetization has become to the long-term plan. Alibaba's Solid Balance Sheet Helps Fund Longer-Term Priorities Notably, Alibaba’s free cash flow has been negative over much of the past several quarters. In the last nine months free cash flow was negative $4.2 billion. However, the figure was positive this quarter at $1.62 billion. Despite burning cash, Alibaba’s balance sheet remains strong. The company reports $80.1 billion in cash and other liquid investments, while debt stands at about $37 billion. That financial flexibility gives the firm considerable capacity to keep investing in strategic priorities. The company did not address the recent resignation of Qwen’s head of AI, Lin Junyang. Any further top-level changes in AI leadership will be important to watch, since they could affect whether the firm maintains its strong position. Alibaba clearly has high hopes for its long-term future. Near-term issues are weighing on its e-commerce business, but strong progress in AI supports the outlook. With AI monetization still in relatively early stages and shares down considerably, BABA may look attractive to longer-term investors. |
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