Alibaba Stock Is Getting Hit Again, but Qwen and Cloud Growth Are Surging

Key Points

• Alibaba’s latest quarter showed modest revenue growth but a sharp drop in adjusted profit as the company continued spending heavily to defend its China commerce position.
• Cloud revenue growth accelerated, reflecting strong demand for AI-related products, even as broader concerns persist about talent retention and longer-term AI execution.
• Alibaba’s outlook hinges on whether near-term margin pressure from fast delivery and other initiatives can be balanced by sustained cloud and AI monetization.

For Chinese e-commerce giant and cloud provider Alibaba Group NYSE: BABA, the past six months have not been kind.

Over this period, Alibaba shares are down more than 30%. Market share losses in Chinese e-commerce and questions surrounding the firm’s artificial intelligence (AI) leadership have been two significant headwinds for the stock.

The stock’s decline was just exacerbated by BABA’s latest earnings report, which caused shares to fall approximately 7%.

Still, Alibaba is one of the most important companies in China and a serious player in AI through its cloud business. That combination makes it difficult to ignore, even after a rough stretch for the stock. The latest quarter also sharpened the story: Alibaba is spending aggressively to defend its commerce franchise now, betting that accelerating cloud and AI demand can rebuild profitability over time.

Margin Pressure Deepens as Fast Delivery Spending Rises

In its fiscal Q3 2026, Alibaba reported revenue of $40.73 billion, equating to a growth rate of 2% year-over-year (YOY). This figure moderately missed estimates of $40.95 billion, which called for growth of around 3%.

The bigger issue was earnings. Alibaba posted adjusted earnings of $1.01 per ADR, missing the analyst estimate of $1.65 and falling 67% from a year ago. An ADR, or American depositary receipt, is a bank-issued U.S. security that represents Alibaba’s underlying shares and lets U.S. investors trade the stock in dollars on U.S. exchanges. 

Management attributed the profit decline to heavier spending on quick commerce, user experience initiatives, and technology, with improved cloud performance only partially offsetting the impact. 

The company is also facing a tougher competitive environment in China e-commerce, which has increased the cost of defending its share.

PDD NASDAQ: PDD has been winning in the value shopping market, while ByteDance’s Douyin (the Chinese version of TikTok) has become a leader in discovery-based shopping, where users buy products after seeing them in the social media feed. Meanwhile, Meituan OTCMKTS: MPNGF remains a dominant force in food delivery and similar products. Alibaba remains the largest player but is having to invest significantly to defend this position. At present, this is coming at the expense of profitability.

Quick commerce, or delivering products in one hour or less, has become a “cornerstone” of its e-commerce business. There are some positive signals coming from this growth-focused strategy during the quarter, with quick commerce revenue reported up 56% YOY.

Additionally, the company added 150 million annual active customers (AAC) in 2025, or users who made at least one purchase during the year. However, these users tend to be of lower quality, making smaller purchases and buying less frequently.

Alibaba is hoping to win this battle over the long haul, and doesn't expect that its quick commerce business will be profitable until fiscal year 2029.

Cloud Growth Accelerates as Qwen Sees Strong Developer Adoption

Alibaba’s Cloud Intelligence Group delivered one of the clearest positives in the quarter. Revenue rose 36% YOY to $6.19 billion, marking the unit’s ninth consecutive quarter of growth acceleration and its fastest pace in three years. Management pointed to AI demand as a key driver, with AI-related product revenue growing at a triple-digit rate for the 10th straight quarter. The segment also remained profitable, with an adjusted EBITA margin that was “relatively stable” at 9%.

The company’s foundational model, Qwen, is the most widely used open-source model, with over 1 billion downloads on Hugging Face. Hugging Face is a platform where developers can download and tune models to build applications on top of them.

That open-source adoption matters because broader developer usage can translate into demand for inference and tooling within Alibaba’s cloud ecosystem. As more developers build on Qwen, more usage shifts to running and serving those models at scale through inference and related tooling.

Hugging Face also shows that Qwen is a popular base for customization, with developers creating more than 113,000 derivative models tuned from Qwen.

That is more than the next two closest competitors, Alphabet's NASDAQ: GOOGL Google and Meta Platforms NASDAQ: META, combined.

The takeaway is simple: Qwen has gained significant traction with developers, and that traction can help support growth in Alibaba’s cloud business as more applications are deployed and used.

Alibaba has set aggressive goals for its cloud and AI push. CEO Eddie Wu has said the company is targeting more than $100 billion in combined external cloud and AI revenue within five years, underscoring just how central AI monetization has become to the long-term plan.

Alibaba's Solid Balance Sheet Helps Fund Longer-Term Priorities

Notably, Alibaba’s free cash flow has dipped into negative territory over many of the last several quarters. In the last nine months, free cash flow was negative $4.2 billion. However, the figure came in positive this quarter at $1.62 billion.

Despite hemorrhaging a significant amount of cash, Alibaba’s balance sheet remains strong. The company notes that its cash and other liquid investments sit at $80.1 billion. Meanwhile, its debt is around $37 billion. These factors give the firm considerable ability to continue investing in its strategic priorities.

The company did not address the recent resignation of Qwen’s head of artificial intelligence, Lin Junyang. Further changes in the company’s top AI leadership are important to pay attention to going forward, signaling whether the firm can maintain its strong position.

Alibaba clearly has high hopes for its long-term future. Near-term issues are certainly affecting its e-commerce business, but its impressive progress in AI supports its outlook. Overall, with AI monetization still in the relatively early stages and shares down considerably, the outlook for BABA shares appears attractive going forward.