cautiously

Alibaba Group (BABA 4.08%) has tested investors’ patience over the past few years. From regulatory crackdowns to slowing consumer spending and intensifying competition from Pinduoduo and Meituan, the company went from China’s undisputed tech champion to a stock many investors gave up on.

But the latest results suggest there are reasons to turn more optimistic. While risks remain, Alibaba is showing early signs of strategic progress in areas that matter for the long run. Here are three reasons investors should take another look.

Image source: Getty Images.

1. Cloud and AI are driving real growth

For years, Alibaba Cloud was a disappointment to investors. Despite being China’s market leader, growth slowed and profits remained elusive. That narrative is beginning to change.

In its June 2025 quarter (fiscal Q1 2026), Alibaba reported cloud revenue up 26% year over year to RMB 33.4 billion ($4.7 billion), significantly outpacing the company’s overall revenue growth of 10%. Even more telling, management disclosed that artificial intelligence (AI)-related revenue grew at triple-digit rates for the eighth consecutive quarter, and now accounts for more than 20% of Alibaba Cloud’s external revenue.

That’s not just a rebound — it’s a structural shift. AI workloads are far more compute-intensive than traditional hosting, which means higher revenue per customer, better margins, and stickier client relationships. With its large language model, Tongyi Qianwen, along with AI-powered enterprise tools, Alibaba is no longer just a cloud infrastructure provider. It’s becoming an AI platform, which could prove to be a durable growth engine.

2. Building strategic resilience with domestic AI chips

Another reason for optimism is Alibaba’s investment in semiconductor design. Reports indicate the company is testing its own AI inference chip, a critical step in reducing dependence on U.S. technology amid export restrictions.

To be clear, Alibaba isn’t about to replace Nvidia for training large-scale models. But inference — running AI models in real-world applications — is where much of the usage (and monetization) occurs. By developing its own inference chips, Alibaba is hedging against supply chain risks and ensuring it can scale AI services without being entirely at the mercy of geopolitical tensions.

This strategy matters because it protects Alibaba’s ability to commercialize AI across its businesses — from cloud computing to e-commerce and logistics. And while there is no plan to offer these chips to external customers, there is no reason to think that this cannot change in the future, opening up a new potential revenue source.

In other words, Alibaba’s investment in domestic chips is both a defensive and potentially offensive move that investors should not overlook.

3. Encouraging signs of a sentiment shift

Finally, sentiment may be slowly turning in Alibaba’s favor. Following the latest results, Mizuho, Bernstein, and Citi all raised their price targets or reiterated buy/outperform ratings, pointing to cloud growth and AI adoption as key catalysts.

Analysts’ upgrades don’t guarantee a smooth recovery. In fact, Alibaba has plenty more to do to regain long-term investors’ confidence, such as returning to sustainable growth in its e-commerce business, reducing the losses of its other companies, and growing its other ventures, such as Ding Talk and entertainment.

But when Wall Street begins to rerate a stock after years of negativity, it often signals a shift in how investors view the company’s future potential. If Alibaba can execute in the coming quarters, there’s a good chance that the stock price may start to reflect these positive developments.

For perspective, Alibaba’s stock trades at a price-to-sales ratio of just 2.4 times, which is just a fraction of its peak valuation of 15.5 times. So, owning the stock now offers downside protection, as well as upside opportunity.

What it means for investors

Alibaba is far from risk-free. Competition in e-commerce remains fierce, and China’s macroeconomic backdrop is still uncertain.

But beneath the noise, Alibaba is showing encouraging signs: Its cloud business is gaining momentum thanks to AI, it’s building strategic resilience with domestic chip development, and sentiment is finally beginning to thaw.

For long-term investors, that combination may be the clearest reason in years to be cautiously optimistic about holding Alibaba stock.

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Leading European stock markets reflected a cautiously positive sentiment on Friday as investors watched for progress on Ukraine peace talks and awaited a speech from US Federal Reserve chair Jerome Powell. He will speak on Friday at Jackson Hole, where central bankers gather for their annual meeting. 

Markets also digested details of an EU-US trade truce and better-than-expected business activity data, announced on Thursday.

Despite the news that the German economy shrank more than initially estimated in the second quarter, the German DAX changed direction and made up its earlier losses, gaining around 0.1% after 11.00 CEST.

The FTSE 100, though trading in negative territory all morning, also followed suit and changed course, gaining a few points by late morning.

The Paris CAC 40 was up 0.2%, the Madrid IBEX 35 rose by 0.4%, and the European benchmark STOXX 600 increased by 0.2%. 

As for the London blue chip index, the early morning slight dip appeared to be just a small correction. “The FTSE 100 saw a subdued start on Friday after achieving a record close above 9,300 yesterday,” said AJ Bell investment analyst Dan Coatsworth in his note.

Investors are focusing on the message Federal Reserve chair Jerome Powell might deliver at the Jackson Hole summit in Wyoming.

“Investors had been expecting a rate cut from the Fed next month so if Powell were to say anything suggesting rates might be kept on hold, it could see stocks come under greater pressure,” said Coatsworth. He added that robust PMI data from the US on Thursday pointed to a strong economy, potentially reducing the chances of the Fed lowering borrowing costs.

A cut in interest rates would be the first of the year and it would give asset prices and the economy a boost — but it could also risk worsening inflation.

The Fed has been hesitant to cut interest rates this year out of fear that President Donald Trump’s tariffs could push inflation higher, but a surprisingly weak report on employment growth earlier this month suddenly shifted focus towards the job market. Trump, meanwhile, has forcefully pushed for cuts to interest rates, directing fierce criticism towards Powell.

US markets closed in a gloomy mood

On Wall Street on Thursday, the S&P 500 slipped 0.4% to 6,370.17, continuing a gradual decline since a record on 14 August. The Dow Jones Industrial Average dropped 0.3% to 44,875.50, and the Nasdaq composite fell 0.3% to 21,100.31.

In other dealings early on Friday, the US dollar rose to 148.48 Japanese yen, from 148.37 yen. The euro slipped to $1.1590 from $1.1606.

Meanwhile, oil prices fell by midday in Europe; the US benchmark crude lost 0.2% and was traded at $63.38 per barrel. Brent crude, the international standard, also was down by 0.2% at $67.52 per barrel.

Oil prices moved higher yesterday, “as the initial enthusiasm over progress towards a ceasefire between Russia and Ukraine continues to fade”, said ING in a note. Expectations of increased global uncertainty are driven by the difficulties of setting up a Putin-Zelensky summit and securing potential security guarantees for Ukraine.

Asian markets were also mixed on Friday

Asian shares were also mixed on Friday. In Tokyo, the Nikkei 225 rose less than 0.1% to 42,633.29 after Japan’s core inflation rate slowed to 3.1% in July, from 3.3% in June.

ING Economics said in a note that price pressures were broadly in line with market consensus. Inflation staying above 3% raises the likelihood of a rate hike as soon as October, it said.

In Chinese markets, Hong Kong’s Hang Seng index rose 0.9% to 25,339.14. The Shanghai composite index climbed 1.5% to 3,825.76.

South Korea’s Kospi added 0.9% to 3,168.73. Australia’s S&P/ASX 200 fell 0.6% to 8,967.40 as traders sold to lock in gains after the benchmark surged to record highs in recent trading sessions.