Goldman Sachs significantly raises Alibaba's capital expenditure forecast for the next three years to 460 billion yuan: Internationalization of cloud business underestimated, AI spending transformation is reshaping growth!

```

Goldman Sachs has significantly raised its expectations for Alibaba's capital expenditure and target price. Analysts state that the transformation of AI capital expenditure is reshaping Alibaba's growth outlook. Although the company has recently experienced a pullback due to profit-taking, its breakthrough in AI cloud computing capabilities and international expansion potential has provided new momentum for the stock price.

According to Chase Wind Trading Desk, Goldman Sachs stated in its October 13th report that Alibaba Cloud's AI revenue has achieved triple-digit growth for eight consecutive quarters, reaching 20% of cloud revenue in the June quarter. Based on the surge in full-stack AI capabilities and multimodal AI demand, Goldman has adjusted the growth rate of Alibaba Cloud’s external revenue from the previous 30%/25%/17% to 33%/29%/19%.

Goldman Sachs has substantially raised its forecast for Alibaba’s capital expenditure over the next three years to 460 billion yuan, making it one of the most aggressive forecasts on Wall Street. Analysts believe that this level of investment will support Alibaba Cloud’s leading position in China’s AI cloud market and drive rapid growth in its international business. It is estimated that by fiscal year 2028, international business will contribute a quarter of Alibaba Cloud’s external revenue.

Under the new bull and bear logic, analysts have significantly raised the 12-month target price for Alibaba’s U.S. shares to $205, about 15% higher than the previous target of $179.

The AI Capital Expenditure to Revenue Conversion Framework Reshapes Growth Expectations

Goldman Sachs introduced an analytical framework in its report for converting AI capital expenditure into revenue.

Analysts believe that compared with the historical data of Amazon AWS and Google Cloud, Alibaba is about two years behind the development trajectory of U.S. cloud service giants. This time lag coincides with the technological breakthroughs of ChatGPT (end of 2022) and DeepSeek (January 2025).

Goldman Sachs estimates Alibaba currently has a data center capacity of 3-4GW, with plans to expand to 20GW by 2032. This would require about 2GW of additional capacity yearly. Based on an estimate that each GW can support one million GPUs, this expansion plan will sustain large-scale capital investment over the next three years.

In terms of capital expenditure, Goldman Sachs sets three scenario assumptions.

In the baseline scenario, Alibaba’s total capital expenditure for fiscal years 2026-2028 will be 460 billion yuan, with a capital expenditure-to-revenue conversion ratio of 0.2-0.3; in the optimistic scenario, total spending could reach 550 billion yuan and a conversion ratio above 0.3; in the pessimistic scenario, spending drops to 380 billion yuan and the conversion ratio is below 0.2.

International Strategy Raises Valuation Ceiling

Alibaba Cloud’s international expansion is an important factor behind Goldman’s valuation upgrade.

Analysts state that Alibaba Cloud has established 91 availability zones across 29 regions, with 900 overseas nodes. It is expected that the revenue proportion of international business will grow from its current mid-single-digit to about 25% by fiscal year 2028, with an annual compound growth rate in the high double digits.

Analysts emphasize that Alibaba Cloud enjoys a premium in international pricing, with the Qwen model priced much higher internationally than domestically. In addition, Alibaba Cloud is accelerating the construction of its first data centers in Brazil, France, and the Netherlands, and upgrading existing facilities in five places including Mexico and Japan, adding 28 AI-specific suites.

In terms of enterprise customer development, Alibaba Cloud has already secured orders from multinational enterprises such as AstraZeneca. AstraZeneca adopted Alibaba Cloud’s European node to build its AI-powered drug discovery platform, improving efficiency by about 300%, providing strong proof of Alibaba Cloud's international capabilities.

Rapid Business Competition Intensifies Short-term Profit Pressure

Despite raising the target price, Goldman Sachs has also warned of the short-term challenges facing Alibaba.

Analysts expect that due to investments in instant e-commerce businesses (including food delivery), Alibaba's group EBITA in the September quarter will fall 80% year-over-year. The instant e-commerce business lost 11 billion yuan in the June quarter, and is expected to widen to 36 billion yuan in the September quarter.

Goldman Sachs believes that competition in the instant e-commerce business with Meituan will be a key variable. In the long term, the market share for food delivery and instant e-commerce will fall into a 5:4:1 pattern between Meituan, Alibaba, and JD.com. Alibaba needs to demonstrate that its investment in instant e-commerce can bring about synergies, particularly by driving the growth of Commercial Monetization Rate (CMR) through cross-selling.

The report points out that Alibaba’s management’s confidence in CMR growth comes from advances in advertising technology and the instant e-commerce business. The merchant penetration rate for full-site push ad products has exceeded 30%, and in the medium term, instant e-commerce can contribute 2-3 percentage points to CMR, and in the long term up to 5-10 percentage points.

Goldman Sachs’s re-set bull-bear scenario analysis shows that in the optimistic case Alibaba’s target price could reach $280, representing a 76% upside from the current stock price; in the pessimistic case, $141, only an 11% downside risk. The positive to negative return ratio of 6:1 leads analysts to see the current share price pullback as an attractive buying opportunity.

~~~~~~~~~~~~~~~~~~~~~~~~

The above excellent content is from Chase Wind Trading Desk.

For a more detailed interpretation, including real-time analysis and frontline research, please join [Chase Wind Trading Desk • Annual Member]

Risk Warning and DisclaimerThe market has risks, investment requires caution. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, views or conclusions contained in this article are appropriate to their particular circumstances. Invest accordingly, responsibility at your own risk. ```