Key Morningstar Metrics for Alibaba Group Holding
- Fair Value Estimate: USD 267.00
- Morningstar Rating: ★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: High
Alibaba Group Holding BABA will increase capital expenditure beyond the committed CNY 380 billion, as artificial intelligence infrastructure demand is exceeding expectations. The firm anticipates its global data center energy use to be 10 times above the 2022 level by 2032, and it will partner with Nvidia NVDA to build physical AI capabilities.
Why it matters: We think higher capex is essential to meet the stronger-than-expected demand for AI infrastructure domestically and internationally. The projected surge in global data center energy consumption signals a robust outlook for cloud revenue.
- The physical AI collaboration will drive AI adoption across industries such as auto and robotics. Alibaba’s increased investment in overseas data centers, competitive performance, widespread use of its open-source models, and improved performance of its self-developed chip all support cloud revenue growth.
- We now assume capex will average 15% of revenue over the next three years, resulting in an 11% average lift in cloud revenue over the coming decade versus previous forecasts. A higher contribution from high-margin AI revenue led to a 12% average increase in our adjusted EBITA estimates.
The bottom line: We raise wide-moat Alibaba’s fair value estimate by 49% to USD 267 per share, reflecting stronger cloud profits, higher stage two assumptions due to AI demand, and a reduced holding discount on noncurrent investments to 10% from 30%. The shares appear undervalued.
- As of the June quarter, Alibaba’s cash and investments accounted for 49% of its current market capitalization. The firm divested stakes in noncore businesses, increased dividend payouts, and repurchased shares in fiscal 2024-25, leading to the reduced holding discount.
- Alibaba’s aggressive AI investment strategy, strong capabilities and market share in AI cloud, leadership in open-source models, and full-stack AI infrastructure position it well to capture robust AI demand growth in China, and to a lesser extent internationally.
