Alibaba BABA Cloud's external revenues surged 45% year over year in the June quarter of 2026, the fastest growth in 22 quarters, reflecting robust demand for artificial intelligence (AI) infrastructure. AI Cloud and Compute Services revenues increased 45% to RMB48.4 billion ($7.14 billion), driven by compute, storage, Model-as-a-Service (MaaS) and AI applications.
AI-related product revenues reached RMB12.4 billion, marking the 12th consecutive quarter of triple-digit growth. These products accounted for 35% of external cloud revenues, with an annualized revenue run rate exceeding RMB49.5 billion. Annual recurring revenues from model and application services, including MaaS, surpassed RMB16 billion as of August.
Cloud profitability is improving alongside growth. AI Cloud and Compute Services adjusted EBITA jumped 133% to RMB5.63 billion, with a margin of approximately 11.6%. Higher-margin AI products, stronger pricing power and better resource utilization could support further expansion.
Alibaba's proprietary T-Head Zhenwu chips already serve more than 650 external customers, potentially reducing reliance on expensive third-party processors. Its Qwen models and QwenWork enterprise agent could also drive recurring demand for cloud computing.
Yet sustaining this momentum comes with challenges. Capital expenditures surged 75% to RMB67.7 billion, contributing to a RMB44.7 billion free-cash-flow outflow. Rising chip prices, supply constraints and geopolitical restrictions could complicate expansion. Nevertheless, accelerating AI adoption, growing MaaS revenues and improving cloud margins suggest that Alibaba can sustain strong cloud revenue growth, provided its substantial infrastructure investments generate adequate returns.
How Does Alibaba Compare With U.S. Cloud Rivals?
Microsoft MSFT remains a formidable rival in enterprise cloud infrastructure. In the first quarter of fiscal 2027, Azure revenues grew 48%, while Microsoft Cloud revenues rose 30% to $63.9 billion. Microsoft's worldwide data-center footprint and enterprise software relationships support customer retention and AI cross-selling, challenging Alibaba's ability to win multinational cloud workloads.
Alphabet GOOGL poses another challenge through Google Cloud. In the third quarter of 2026, Alphabet's Google Cloud revenues surged 103% to $30.7 billion, fueled by enterprise AI infrastructure, AI solutions and TPU systems. Alphabet's in-house chips, Gemini models and global cloud reach support its rapidly scaling AI services, intensifying competition for high-value enterprise workloads that Alibaba is targeting.
BABA’s Share Price Performance, Valuation & Estimates
BABA’s shares have declined 31.1% year to date compared with the industry’s fall of 0.7%.
BABA’s YTD Price Performance
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From a valuation standpoint, BABA is currently trading at a trailing 12-month price-to-sales ratio of 2.14, above the sector’s average of 1.73. The company carries a Value Score of B.
BABA’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2027 and 2028 EPS has been revised downward over the past 30 and 60 days. The company has also missed earnings expectations in each of the trailing four quarters, with an average negative surprise of 45.59%.
Image Source: Zacks Investment Research
Alibaba currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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