Wall Street reviews Alibaba’s earnings report: Short-term “profit reset” paves the way for long-term AI boom

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Faced with Alibaba's latest financial report of "increased revenue but not increased profit," Wall Street investment banks generally point out that short-term profit pressure is an inevitable result of increased AI investment. The market should focus on its long-term explosive monetization power for "cloud + generative AI".

According to information from Chase Wind Trading Desk, on March 20, JPMorgan and Goldman Sachs released analytical research reports on Alibaba's third quarter results for fiscal year 2026. JPMorgan's report pointed out, "Alibaba’s overall revenue performance this quarter was acceptable... but profits were significantly below expectations." Specifically, "adjusted net profit decreased by 67% year-on-year to RMB 16.7 billion, which is 40%/44% lower than JPMorgan’s forecast/market consensus expectations."

The core reason for the sharp pressure on profits lies in cost expansion. The report stated, "The profitability of each business segment was generally below expectations, offsetting positive income factors, reflecting greater-than-expected cost pressure, and weak short-term profit trends." Among them is the newly classified "all other business" segment that includes AI layout.

Although short-term profit logic is under pressure, the most important business logic has not been broken and the core narrative remains intact. JPMorgan emphasized, "This quarter does not shake the core narrative—that is, the cyclical slowdown in ecommerce monetization and steady demand for AI/cloud."

Goldman Sachs Defines "Profit Reset", Focuses on Full-Stack AI Capability

Goldman Sachs regards this financial report as a "key earnings reset event." The firm believes the profit decline is "due to investments in the Tongyi Qianwen (Qwen) AI model/application, and may continue to drive up losses in the 'all other' business segment in future quarters."

Beneath the surface of profit resetting, business lines are undergoing positive changes. The report points out that the market has seen "encouraging signs of inflections."

These signs are reflected in three specifics: First, "cloud revenue further accelerates"; second, "core ecommerce Customer Management Revenue (CMR) returns to normal from December's seasonal low point"; and third, "unit economics of instant retail continue to improve."

AI Token Consumption Surges 6-fold, Cloud Business Reaches Growth Turning Point

Behind short-term profit pain, Wall Street sees explosive growth in AI business data.

On commercialization, JPMorgan points out, "Cloud business external customer revenue growth rate increased from last quarter's 29% to 35%... AI-related product revenue still maintains three-digit growth."

Goldman Sachs’ research report focuses closely on Alibaba’s newly established “Alibaba Token Hub” business (the "Token business group") and its strategic progress. The business group integrates models and application layers, "to drive growth in token consumption."

An explosive data point: "Management shared that token consumption in its Bailian API business in March was six times that of December."

With such growth expectations, Goldman Sachs notes that management has set a clear long-term target: "To have annual AI MaaS and cloud external revenue exceed USD 100 billion within five years."

Based on strong AI demand, the firm raised its Alibaba Cloud business forecasts: "Given the strong momentum in MaaS (model-as-a-service) revenue brought by AI demand as well as the company’s continued commitment and focus to external clients, we now forecast that cloud business growth rates for the March quarter/2027 fiscal year will reach 40%/35%."

On future market pricing, JPMorgan believes: "It is expected that the stock will withstand short-term profit pressure and see a valuation upgrade when the monetization turning point for 'cloud + generative AI' becomes clearer."

Underlying Computing Power: T-Head Chip Annualized Revenue Hits RMB 10 Billion Scale

Besides cloud software and models, Alibaba's underlying hardware layout has also attracted Wall Street’s attention. Goldman Sachs delved into progress of Alibaba’s in-house T-Head chip business.

Goldman Sachs cites company-released data: "Total T-Head chip shipments exceed 470,000 units, latest annualized revenue has reached RMB 10 billion scale, and 60% of chips are used by external customers." This constitutes Alibaba's "unique AI full-stack capabilities."

Regarding the strategic value of this business, Goldman Sachs believes this is Alibaba’s core moat: “We continue to view Alibaba’s in-house chip development, China’s largest-scale cloud infrastructure, and the cutting-edge Qwen model as its uniquely differentiated advantages versus other Chinese hyperscale cloud vendors.” Also, Goldman Sachs mentioned, "The company does not rule out eventually listing the business, but has not provided a timetable."

E-commerce and Instant Retail: CMR Recovers, Clear Profit Timeline

Back to the core businesses, the market is highly attentive to Taobao and Tmall’s Customer Management Revenue (CMR) and the money-burning status of instant retail (Quick Commerce).

Goldman Sachs quotes management as expecting that “CMR growth rate for the March quarter will accelerate to above mid-single digit percent (after the 1% seasonal low in December quarter).”

For instant retail business, which drags profits, Wall Street gives the company a clear stop-loss and profit timeline. Goldman Sachs points out, “The company aims to achieve RMB 1 trillion in instant retail GTV (Gross Transaction Value) in fiscal year 2028, and targets profitability in fiscal year 2029, driven by improved logistics efficiency, optimized order structure, and strong customer retention rate.”

Institutional Consensus: Risk/Reward Tilted Upward

Faced with stock price volatility after the financial report, both investment banks reaffirm their positive position, believing that short-term margin decline is a reasonable price to pay for seizing AI era opportunities.

JPMorgan summarizes its investment logic: “Overall, we believe the risk/reward is tilted upward, as AI-driven cloud business upside and platform optionality exceed the drag from short-term investments.” The firm further expects, “As generative AI workloads expand from pilot to broader deployment, providing real evidence of Alibaba’s ability to capture and materialize AI-driven demand in China, Alibaba Cloud revenue will continue to accelerate growth in the coming quarters.”

Goldman Sachs is straightforward about opportunities from market volatility: “Although mixed performance triggered an initially negative stock reaction (down as much as 9%), we believe any share price weakness creates a more favorable entry point for Alibaba.”

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