In a recent financial disclosure, Alibaba Group Holding Limited, one of the largest e-commerce and technology companies in China, reported that its revenue for the third quarter of the fiscal year 2025 reached 280.15 billion yuan, representing an 8% year-on-year growthThis announcement highlighted accelerating growth in its e-commerce sector and a rebound for Alibaba Cloud, which returned to double-digit revenue growthAdditionally, income generated from AI-related products has seen consistent triple-digit growth for six consecutive quartersThese results exceeded market expectations and led to a notable surge in Alibaba's stock price following the earnings release.

Upon the after-hours trading on the U.S. stock market, Alibaba's stock rose by a substantial 9.58%, continuing to climb even higher after the market opened, peaking at a staggering 14.59%. By the close of the trading day, its stock was valued at $143.75, pushing the company’s total market capitalization to approximately $341.5 billionThis marks a significant rebound since the beginning of the year, where Alibaba’s share price has increased by 60%, playing a pivotal role in the resurgence of Chinese technology stocks.

Following the earnings announcement, several international investment banks responded positively by revising their price targets for Alibaba's sharesDistinguished financial institutions like Goldman Sachs, HSBC, Jefferies, Bank of America, and UBS have collaborated to adjust their projections, setting price targets in the range of $150 to $170. Notably, Goldman Sachs raised its twelve-month price target for Alibaba from $117 to $160, reflecting a remarkable 37% increment based on the reassessment of several critical parameters using the Sum-of-the-Parts (SOTP) valuation method.

Goldman Sachs also significantly raised its valuation multiple for Alibaba CloudThe firm’s expectations for Alibaba Cloud's revenue growth have substantially improved, leading to a revision of anticipated revenue growth rates for the upcoming fiscal years 2026 and 2027, which have been adjusted from 13%/14% up to 23%/25%. As a consequence, Alibaba Cloud's target price-to-sales ratio (P/S) was revised upwards from 2.8 to 3.5, increasing its per ADS valuation contribution from $19 to $31.

Furthermore, Goldman Sachs has enhanced its target price-to-earnings (P/E) ratio for Taobao and Tmall from 8 times to 9 times, driven by a notable 9% year-on-year increase in Customer Management Revenue (CMR), which surpassed market expectations

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Additionally, the total Gross Merchandise Volume (GMV) in Alibaba's domestic e-commerce sector has been stabilizing its market shareIn terms of overall discount rates applied to the SOTP valuation model, it was reduced from 25% to 15% due to the increased weight of cloud operations in the overall valuation, along with an improvement in the financial performance of loss-generating segments like Cainiao and international digital commerce, thus lowering the risk premiums attached to non-core assets.

HSBC, paralleling Goldman, raised its twelve-month price target for Alibaba to $160, suggesting an upside potential of approximately 27.2%, considering the stock's closing price of $125.79 at that timeThis adjustment likewise stemmed from refinements in their respective valuation methodologies, employing both the SOTP and discounted cash flow (DCF) modelsUnder the DCF model, HSBC sustained its capital cost at 9.4% and perpetual growth rate at 3.5%, while forecasting higher free cash flow for the next three yearsIn the SOTP model, the valuation multiple for cloud services was uplifted from a P/S ratio of 2.8 to 3.5, enhancing its contribution value per share by $11 and condensing the discount rate for non-core businesses from 25% to 15%, thereby unlocking hidden values.

In its report, HSBC underscored that a major driving force behind the valuation increase arises from breakthroughs within the cloud sectorDuring the earnings call, Alibaba's management noted that AI inference demand accounted for 60% to 70% of new computing power purchases, resulting in upgraded expectations for revenue growth.

Citi maintained its "Buy" rating on Alibaba, revising the target share prices to HKD 166 on the Hong Kong stock market and $170 for U.S. sharesThe report postulated that Alibaba is at a critical juncture for AI transformation, enhancing capital expenditures to strengthen cloud computing infrastructure and thereby seizing opportunities resulting from industrial changes.

In its analysis, Citi adjusted the valuation multiple for Alibaba Cloud from 4 times the P/S ratio to 5 times, leading to a valuation approximation of $99.4 billion or around $42.1 per share, which constitutes nearly 25% of Alibaba's overall valuation

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This shift is primarily based on sustained aggressive triple-digit growth in revenue stemming from generative AI over six consecutive quarters, with inference demand comprising over 60% of the growth trajectory for revenue expectations in fiscal year 2026, now pegged at 21.8% from a previous 15%.

From the standpoint of AI infrastructure, Alibaba Cloud stands as China's largest cloud service provider, having overhauled its core hardware, computing, storage, network, databases, and big data systems to forge a remarkably robust infrastructure suited for the AI eraAccording to data from Canalys, Alibaba Cloud secured a market share of 36% in the third quarter of 2024.

On a nano-level, during the earnings conference, Alibaba disclosed plans to release a depth inference model based on Qwen 2.5-MAX shortlyAt the end of January, it introduced the flagship AI model Qwen 2.5-Max, which has received accolades for its performance across various authoritative benchmark assessments, placing it among the industry's leadersCurrently, the global derivative model of Qwen has surpassed 90,000 iterations, securing the top rank worldwide.

From a commercial perspective, although Qwen is open-source and does not carry direct fees, it offers a platform for paid API access through its Bai Lian platform, hence ensuring that developers of derivative models will naturally be integrated into the Alibaba Cloud ecosystemEven more crucially, the sales of associated cloud services driven by AI applications come into playThe management team expressed during the call: “In the future, 90% of tokens will be generated and output on cloud computing networks; this apparent volume produced by such large-scale models can only achieve the utmost efficiency on cloud computing networksOur globally distributed data centers ensure a faster delivery of these services to developers worldwide.”

“We perceive AI as a rare, transformative opportunity within the industry,” emphasized Alibaba's leadership during the earnings meeting

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