Alibaba Group - TP lifted on better cloud outlook and super-app vision
- Management signaled incremental capex expansion on top of the 3-year target of RMB380bn at Yunqi Cloud Conference
- Taobao app has piloted local life services, creating a close loop via Amap and Alipay, advancing Alibaba’s super-app vision
- Lowered FY3/26F non-GAAP earnings by 2% to reflect higher subsidy for local life services; FY3/27/28F earnings raised by 1%/5% on faster cloud revenue growth
- Alibaba a solid AI play; Maintain BUY, TP lift to HKD223 on super-app progress and better cloud outlook
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Alibaba hosted its annual Yunqi Cloud Conference in Hangzhou on 24 Sep 2025, underscoring its ambition to lead in China’s AI infrastructure and model ecosystem. Key takeaways are:
- Model adoption momentum
- Step-up of AI investment
- Physical AI collaboration with Nvidia -
- Top-tier model capability -
- AI server breakthrough
We think the series of announcements has reaffirmed Alibaba Cloud’s position as China’s most comprehensive AI stack, combining infrastructure, models, and enterprise adoption to outpace Chinese peers in the 2B AI race. The various AI developments and signals for incremental AI capex underscore robust cloud revenue growth ahead.
New PPU AI chip reducing external chip reliance. Last week, CCTV also reported Alibaba’s new T-Head PPU AI chip with hardware metrics- 96 GB HBM2e, 700 GB/s interconnect, 400 W board power - exceeding Nvidia’s A800 and broadly comparable to the H20, at roughly 40% lower cost. Importantly, the PPU has already secured an order from China Unicom for over 10,000 units, underscoring early commercial traction. Public reports also highlight that the chip is compatible with Nvidia’s CUDA ecosystem, lowering switching costs for developers and enterprises migrating workloads. Alongside SMIC’s early trials of an immersion DUV lithography tool, these moves suggest that China is steadily building upstream capacity, supporting long-term chip independence. For Alibaba, this translates into reduced reliance on external suppliers, greater cost control, and improved certainty of compute resources—positive for both margins and scalability of Alibaba Cloud.
Pilot launch of local life services on Taobao app
Following its official re-entry into the in-store business with Amap and the launch of the “Amap Street Sweeping Ranking” on 10 September, Alibaba has expanded its Quick Commerce business from delivery into in-store group buying, piloting the service in Shanghai, Shenzhen, and Jiaxing on 20 September.
The “Street Sweeping Ranking,” built on the real travel data of its huge Amap users and covering over 7mn restaurants and 13mn local service destinations nationwide, showcases the real-time popularity of trending venues such as restaurants, hotels, and tourist attractions. At the same time, Amap announced over RMB1bn in subsidies through the “Local Gems Support Initiative” to encourage in-store consumer spending.
The in-store group buying pilot, available through the Taobao app and supported by Alipay and Amap, establishes a closed-loop transaction model, initially targeting beverages, desserts, and dining with well-known chains. The strategy is to start small—testing business models and user experience in three diverse cities—before scaling nationwide, while leveraging Alibaba’s vast ecosystem traffic from Taobao, Alipay (1bn+ MAUs), and Amap (170mn+ DAUs). In-store group buying is a natural extension of Alibaba’s food delivery ecosystem, where traffic is already aggregated through Ele.me. By channeling that traffic into higher-margin in-store transactions, Alibaba can improve monetization efficiency, deepen merchant relationships, and capture a larger share of consumer wallet. While we expect incremental spending on user subsidies as the service expands into more cities, this move marks a significant step toward Alibaba’s super-app vision. It should also unlock synergies with Alibaba’s other offerings, such as Ele.me and its broader delivery business, enhancing user stickiness, monetization potential, and tapping into incremental offline consumption scenarios.
Recommendation and Valuation
We lifted our FY3/26/27/28 cloud revenue growth assumptions by 2%-3% given the higher visibility of AI chip supply. We now forecast cloud revenue to grow by 28% CAGR from FY3/25-28F. However, we lowered our FY3/25 non-GAAP net profit assumptions by 2% to factor in higher subsidies for the initial launch of its local life services. We now forecast the company’s non-GAAP net profit to drop by 18% in FY3/26 before rebounding by 29%/16% in FY3/27/28F. We maintain our BUY rating and lifted our TPs to HKD223 (previously HKD161), based on SOTP methodology: (1) Core commerce (HKD148): 15x FY3/27 P/E; (2) Cloud (HKD75): 6x P/S. Note that we incorporated Digital Media and Local Services into the Core Commerce segment under our SOTP methodology to better align with Alibaba’s new segment disclosure. We applied a 15x PE target multiple to reflect the initial success of its super-app strategy, and raised the target PS multiple for Cloud to 6x (from 5x) to capture faster growth in this segment. We have also rolled forward our valuation base from the average of FY3/26–FY3/27 to FY3/27. We believe Alibaba remains a solid AI proxy play, supported by accelerating cloud revenue growth. We also like the robust CMR growth outlook, driven by higher take rates and traffic gains from its Quick Commerce business.
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