Alibaba Cloud's Growth Accelerates With AI, Analyst Weighs DeepSeek's Rising Competition

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Alibaba's Qwen2.5 AI models gain traction, boosting share price and cloud revenue growth expectations.
Analyst sees Alibaba Cloud's AI-driven growth accelerating, but competition from DeepSeek and geopolitical risks remain challenges.
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Goldman Sachs analyst Ronald Keung maintained a Buy on Alibaba Group Holdings BABA with a price target of $117.

Keung noted Alibaba’s Qwen2.5 family continues to gain traction in Huggingface’s latest Open LLM Leaderboard.

The analyst noted that Alibaba’s recent share price outperformance versus the sector (since its Qwen2.5 model launches) has been potentially due to the leading benchmark performances of its latest Qwen2.5-Max.

Also Read: Apple’s AI Split: Chooses Alibaba For China And OpenAI For Everyone Else

Investor focus is likely on the value of Alibaba Cloud as China’s largest cloud hyperscaler, where he valued Alibaba Cloud at 3 times revenue versus Amazon.Com Inc AMZN Amazon Web Services at 7 times revenue.

The analyst expects a sequentially stronger core domestic eCommerce performance, which the appliance trade-in program will help, a software service fee boost, and continued acceleration in cloud revenue growth.

With Alibaba’s upcoming December quarter results, Keung forecasted group revenue growth of 7% and Alibaba Cloud revenue growth, which he expects to accelerate to 10% for the December 2024 quarter and 12% for the March 2025 quarter (from 7% in the September 2024 quarter).

The analyst expects an acceleration of cloud revenue growth across China cloud service providers (CSPs) in 2025E on increased revenue contribution from the margin-accretive generative AI-driven business.

Keung noted the continued progress of open-source models at competitive performance and costs versus closed-source, with the increasing availability of open-source models supported by global cloud service providers.

He noted increasingly agile Chinese models and significant improvement in computing cost efficiencies could drive further room for broader adoption, exploration, the proliferation of AI applications, and potential for global expansion for Chinese players, assuming Chinese companies can continue to tap computing power and chips.

However, Keung flagged a rise in competition between capital-rich internet giants versus affordable start-ups like Deep Seek in the model layer, given lowering barriers to entry, an ongoing shift from training to more inferencing, and ongoing geopolitical uncertainties.

Yet Keung remained positive on long-term AI computing demand growth as further lowering of training and inference costs could drive higher AI adoption.

Price Action: BABA stock is up 1.99% at $113.53 at the last check on Tuesday.

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