The stock price plummeted after the financial report, and Morgan Stanley spoke out: Alibaba Cloud's growth logic has not changed!

Source: Wall Street Journal  

**Post-Earnings Stock Plunge, but Morgan Stanley Believes Alibaba Cloud Strategy Remains Intact, Monetization Strengthens—Market Expectations Were Too High**  

On Thursday evening, Alibaba reported fiscal Q4 revenue growth of 7% year-over-year, missing expectations, though net profit saw a significant increase. Following the earnings release, Alibaba’s stock fell approximately 8%, significantly underperforming the broader market.  

According to Wind Trading Desk, Morgan Stanley analyst Gary Yu and his team released a research note on Thursday stating that while Alibaba’s latest earnings slightly fell short of Wall Street’s expectations, the growth logic of Alibaba Cloud remains solid and will continue to benefit from the explosive demand in the AI industry.  

In the report, Morgan Stanley maintained its "Overweight" rating on Alibaba, keeping the target price unchanged at $180.  

**Market Expectations for Cloud Business Were Too High, but Growth Logic Remains Firm**  

Morgan Stanley’s analysis suggests that Alibaba’s stock decline was primarily driven by overly optimistic market expectations for 20% growth in Alibaba Cloud, whereas the actual reported 18% growth aligned with Morgan Stanley’s forecast.  

Dolphin Research noted that the phase where Alibaba Cloud could attract investors solely with the narrative of being "the biggest beneficiary of the AI era" has clearly passed. For Alibaba Cloud’s valuation to rise further, it now needs actual growth to exceed current market expectations, creating a cycle where higher expectations lead to further beats, driving upward revisions in performance forecasts and valuation expansion.  

Morgan Stanley believes that seasonal factors related to the Lunar New Year and supply chain fluctuations in Q4 masked Alibaba Cloud’s true growth potential. According to the report, AI-related product revenue has maintained triple-digit growth for seven consecutive quarters—a highly attractive trend for investors.  

The report highlights that Alibaba Cloud’s investment logic remains robust, supported by three key factors:  

1. **Industry Demand Exceeds Supply**: As the only cloud service provider focused on external cloud business, Alibaba stands to benefit from industry growth.  

2. **Synergies from the Qwen Model**: Alibaba’s open-source Qwen3 model has both edge-side and cloud applications, enhancing customer stickiness.  

3. **Continued Investment in AI Infrastructure**: While short-term margins may be impacted, this will support long-term growth.  

The report also cited CEO Eddie Wu’s remarks during the earnings call, where he expressed "strong confidence" that Alibaba Cloud’s revenue growth will remain on an "upward trajectory" in the coming quarters.  

Additionally, Alibaba’s management highlighted two key trends:  

1. AI applications are expanding from internal systems to customer-facing scenarios among large and medium-sized enterprises.  

2. AI product adoption is extending from large enterprises to a growing number of small and medium-sized businesses.  

Wu explained:  

*"New customer demand is largely driven by inference applications or scenarios, but their full-scale deployment may occur gradually in the coming months—February, March, April, or even May."*  

Morgan Stanley expects Alibaba Cloud to achieve 22% revenue growth in F1Q26 (next quarter), which could serve as a key catalyst for a stock rebound.  

**E-Commerce Business: Improving Monetization Efficiency, AI-Driven Prospects**  

In Q4, Alibaba’s Taobao and Tmall Group (TTG) reported a 12% year-over-year increase in customer management revenue (CMR), significantly surpassing the analyst consensus of 9%.  

Morgan Stanley noted that CMR growth continues to outpace GMV growth, a trend likely to persist for at least two more quarters, driven by the implementation of a 0.6% service fee and increased penetration of platform-wide marketing.  

The report forecasts that Alibaba’s GMV growth will align with industry trends, with its strategy focused on embedding AI features into Taobao and Tmall to enhance user engagement and frequency. F1Q26 CMR is expected to grow 10%, with core business adjusted EBITA up 6%, factoring in reinvestments in content, user acquisition, and subsidies.  

**Alibaba’s Valuation Remains Reasonable**  

Notably, Alibaba repurchased approximately $11.99 billion in shares over the past 12 months and announced a $2 per ADS dividend for FY2025 ($1.05 regular + $0.95 special), totaling $4.6 billion in payouts. According to the report, Alibaba returned $16.5 billion to shareholders last year.  

Morgan Stanley projects FY2026 total revenue growth of 8% year-over-year, with CMR up 7% and cloud revenue rising 25%. Group adjusted EBITA is expected to grow 10%, as increased investments in AI and local services will be partially offset by Taobao and Tmall’s continued monetization and narrowing losses in other businesses.  

The report also notes that Alibaba currently trades at just 12x FY2026 estimated P/E, while Morgan Stanley’s target price implies a FY2027 P/E of 16x—still within a reasonable valuation range.  

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