There are a few different ways to invest in artificial intelligence (AI) cloud stocks. Some of the biggest companies in the world -- Amazon (AMZN 0.21%), Microsoft, and Alphabet -- are the industry leaders in the cloud computing space, occupying the top three positions with Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, respectively.
But if you're looking for a sleeper pick for 2026 that potentially could do just as well or even better than the big three, then your best bet is across the Pacific Ocean with the rising AI cloud company Alibaba Group Holding (BABA +1.48%).
What Alibaba does
Alibaba is a big company, with a market capitalization of $375 billion, but it's not nearly as big as Amazon, Microsoft, and Alphabet, all of which have market caps better than $2.5 trillion. And because it operates in China, it tends to fall under the radar of some U.S. investors.
It's known as a successful e-commerce company, with a website that operates as a global wholesale business-to-business marketplace (rather than Amazon's business-to-consumer model). The Alibaba.com site features more than 5,900 product categories and more than 200 million products, allowing businesses to buy and sell in more than 200 countries around the world.
Image source: Alibaba.
Alibaba Group also operates a consumer-to-consumer platform, Taobao, in China, as well as a business-to-consumer platform called Tmall, which features international brand listings and premium offerings. I would argue that Alibaba's e-commerce division is a more attractive investment than Amazon's. In the quarter ended in September, Alibaba reported $14.46 billion in revenue from e-commerce, up 9% from a year ago.
But when you add in sales from what Alibaba calls "quick commerce," which includes revenue through its Taobao Instant Commerce and its Ele.me app, as well as China wholesale sales, the company's e-commerce efforts in the quarter jump to $18.62 billion, up 16% from a year ago. And its international digital commerce revenue of $4.88 billion was up 10% from last year. Amazon's e-commerce revenue for the third quarter was $147.16 billion, up just 12% from last year.
So, while Amazon is bigger and generates more revenue, Alibaba is growing faster.
NYSE: BABA
Key Data Points
Now let's talk about AI
Granted, all this is to set the stage for what's really important -- Alibaba's growth as an AI cloud stock. Because while Amazon (29%), Microsoft (20%), and Alphabet (13%) hold the top three positions in market share, Alibaba is in fourth, with 4% of the market.
The company is experiencing significant growth. The September quarter shows that Alibaba's Cloud Intelligence Group generated $5.59 billion in revenue, representing a 34% increase from the same period last year. Management attributes the growth to public cloud revenue growth and a rapid adoption of AI-related products.
That number is expected to increase next year as Alibaba rolled out upgraded capabilities for its full-stack AI lineup in September, including high-performance AI infrastructure, servers, storage, computing clusters, and services for model training and inference. The company holds the largest share of the fast-growing cloud computing market in China, with a 35.8% market share.
Alibaba is cheaper than the competition and has a strong outlook
It's hard to find "cheap" names to buy in the AI space. However, among cloud computing stocks, Alibaba has the most attractive forward price-to-earnings ratio and the most attractive forward price-to-sales ratio.
BABA PE Ratio (Forward) data by YCharts
In addition, Alibaba's revenue growth is expected to be 9% in the next fiscal year, which is better than expected growth for Amazon (1.45%) and Alphabet (4.7%). Microsoft's revenue is expected to increase by 17.8%.
So, you can make a legitimate argument that Microsoft may be a better performer next year. But considering that the company's already flirting with a $4 trillion capitalization, there's no legitimate way you could ever consider Microsoft a sleeper pick.
Alibaba, meanwhile, is operating under the radar and has already established a dominant position in China. If you're looking for a sleeper pick in the AI cloud race for 2026, BABA stock is my choice.
