Can Alibaba’s Big Bets Pay Off After a Breakout Year?

Key Points

• Even after falling slightly post-earnings, Alibaba's stock price has nearly doubled in 2025.
• The company's growth metrics were impressive last quarter. However, investments required to achieve this growth pressured profitability.
• With massive market shares in e-commerce and cloud computing, Alibaba has a solid chance to deliver long-term value for investors despite near-term issues.

For e-commerce and cloud giant Alibaba Group NYSE: BABA, 2025 has been a fantastic year. As of the Dec. 2 close, shares have delivered a total return of approximately 93%. This highly impressive gain comes despite the fact that shares sold off over 2% after the Chinese stock’s latest earnings report. Below, we’ll dive into the release to gain an updated perspective on Alibaba shares going forward. Even after going on a huge run, does BABA still represent a compelling opportunity for investors? 

BABA Beats on Sales, Posts Double-Digit Growth Across Segments

On Nov. 25, Alibaba reported its Q2 fiscal year 2026 (FY2026) financial results. On the top line, Alibaba’s numbers were solid. Sales grew by 5% to $34.8 billion, beating analyst estimates of $34.4 billion.

Excluding its divested businesses, Sun Art and Intime, adjusted revenue rose 15%, offering a more accurate view of ongoing business performance.

Growth was broad-based across segments:

• Chinese e-commerce revenue increased 16%
• International e-commerce rose 10%
• Cloud revenue surged 34%, accelerating from 26% in Q1 and 18% in Q4 of the prior fiscal year

Crucially, the company reported that AI-driven cloud products have grown 100% or more for nine straight quarters, signaling persistent demand.

Profit Margins Squeezed by Quick Commerce and AI Investments

Despite strong revenue, Alibaba’s bottom line disappointed. Alibaba’s adjusted earnings per American Depository Share (ADS) came in at 61 cents, declining 71%, and substantially below analysts' expectations of 66 cents.

For a stock that has nearly doubled in 2025, a 71% reduction in adjusted EPS rightfully triggers concern. The fall was due to two main factors: investments in quick commerce and AI.

Quick commerce involves delivering items to customers extremely fast, typically within an hour or less. Making good on this commitment requires extensive investments in logistics and warehousing. In a competitive landscape with rivals like JD.com NASDAQ: JD, Alibaba is aggressively spending to gain market share.

According to Nomura analyst Jialong Xi, Alibaba’s investments have paid off, as quick commerce sales grew by 60% last quarter.

Still, growing its market share has come at a considerable cost. The company is heavily discounting products and making logistical investments, which are weighing on profitability. However, it is good to see that Alibaba is achieving what it set out to do in this space.

AI investments are also hurting profitability. However, this clearly seems to be paying off, given the robust acceleration in the company’s cloud revenue growth. Notably, this growth comes even though it is already by far the largest cloud provider in China. Given Alibaba’s growth, markets appear supportive of its investments, with shares falling just 2% after earnings despite higher-than-expected costs.

BABA: A Market Leader With the Right to Invest

The consensus price target on Alibaba is approximately $192. This figure implies solid upside potential of 19% in shares. Analysts issued mixed reactions after the firm’s earnings when updating their price targets.

However, the average of targets updated or issued after earnings comes in at $205, suggesting shares could rise by around 27%.

The most bullish updated target tracked by MarketBeat comes from JPMorgan Chase & Co. at $230. JPMorgan is forecasting very substantial upside in shares to the tune of 43%. In summary, analysts clearly have a solid level of confidence in Alibaba's near-term potential.

Alibaba’s position as a market leader gives it leeway to invest aggressively.

The company controls 44% of China's e-commerce market and holds a dominant role in the domestic cloud industry—two businesses with massive long-term cash flow potential.

While the company’s investment levels and return on investment need to be closely watched, the outlook for this stock remains solid until further notice.