Alibaba Group (BABA) wants a larger share of the AI market. It’s why the company just announced plans to build more data centers across Europe, the Middle East, and Asia as part of its goal of 20-gigawatt infrastructure expansion. Even better, it also intends to expand its data center presence in Malaysia, Germany, the United Arab Emirates, France, and Hong Kong. After all, by establishing cloud regions in Europe, the Middle East, and Asia, it can go head-to-head with competitors like Amazon (AMZN) Web Services (AWS). All in an effort to gain market share and help it pivot its model toward higher-margin and AI services.
www.barchart.com Citi analyst Alicia Yap has a “Buy” rating on Alibaba and a $190 target. However, she believes Alibaba’s plan to build 20 gigawatts of AI data center capacity by 2032 will require much more spending and raised her FY2027 to FY2029 capex spending estimates. If Alibaba is successful, she estimates its AI cloud revenue from outside customers could reach $168 billion by fiscal 2033, “40% FY26–FY33E CAGR; sensitivity range $126B–$210B,” as noted by Seeking Alpha.
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A 20-Gigawatt Bet
Alibaba already operates 107 availability zones across 31 regions worldwide, but CEO Eddie Wu has a much larger network in mind. In fact, he wants to now operate more than 20 gigawatts of global data center capacity by 2032, a sign of how much demand he expects from AI.
Making things a bit more attractive, if Alibaba Cloud can win enough new customers across Europe, the Middle East, and Asia, its expanded data center network could eventually add billions of dollars in annual revenue. Plus, opening cloud regions closer to those customers could make its services more attractive. Even better, it all creates another potential source of recurring revenue for Alibaba. With demand on the rise, customers will pay more to Alibaba to use its computing capacity, storage, and AI services. All of which could result in a win-win for Alibaba.
Recent Earnings Missed Estimates, but Cloud Growth Was Strong
In its most recent quarter, the company's EPS of $1.26 missed estimates by 34 cents. Revenue of $39.64 billion, up 9% year-over-year (YoY), missed by $150 million. Cloud growth was impressive, though. In fact, revenue from AI cloud and compute services was up 45% at RMB48.44 billion, which came in above estimates of RMB47.5 billion.
As noted by CEO Eddie Wu, “We delivered a strong quarter, driven by the improving commercialization of our full‑stack AI capabilities. Alibaba Cloud’s external revenue growth accelerated to 45%, with AI-related product revenue delivering triple-digit growth for the twelfth consecutive quarter,” as quoted in the company’s earnings release.
What Do Analysts Say About BABA Stock?
Overall, Alibaba has a consensus “Strong Buy” rating on Wall Street. Of the 26 analysts covering BABA stock, 21 have a “Strong Buy” rating, one has a “Moderate Buy” rating, and four have a “Hold” rating. The mean target price of $182.70 implies a potential upside of 66% from current levels. Meanwhile, the high price target of $220.10 implies a potential upside of 101%.
Analysts at Citi are bullish with a “Buy” rating and a $190 price target. Barclays has a “Buy” rating and a $200 price target. J.P. Morgan has an “Overweight” rating with a $210 target, too. Alibaba’s AI expansion gives investors a reason to look beyond its latest earnings miss. Cloud revenue is growing quickly, and the company is building capacity closer to customers across Europe, the Middle East, and Asia. If that investment brings in more businesses using Alibaba’s services, Cloud could become a much larger source of recurring revenue. For investors considering BABA now, the key question is whether cloud growth stays strong enough to justify the investment. If it does, today’s expansion could lay the groundwork for a much bigger business by the end of the decade.
www.barchart.com On the date of publication, Ian Cooper did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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