A positive start to the year for Alibaba Group Holding Ltd. (BABA 5.21%) has turned decidedly negative. That's especially true after the Chinese e-commerce and cloud services company reported the results from its 2025 December quarter on Thursday, with Alibaba's shares tumbling 7%.
Alibaba stumbled again in many investors' eyes, with earnings plunging 66% year over year. But is a rebound closer than it looks?
NYSE: BABA
Key Data Points
Investing in AI acceleration
It's important to understand why Alibaba's bottom line deteriorated so much. The good news is that it wasn't because the business is in dire trouble. Alibaba's revenue still rose, albeit only slightly, at 2% year over year.
The significantly lower earnings were primarily due to technology investments. Alibaba CEO Eddie Wu said in the earnings call that his company is making "a critical investment oriented toward the future." Any investments focused on artificial intelligence (AI) infrastructure could be a smart long-term move for Alibaba.
Alibaba Cloud's revenue soared 36% year over year in the latest quarter. AI-related product revenue grew by triple digits for the tenth consecutive quarter. Wu believes this growth is only the tip of the iceberg. He told analysts in the quarterly conference call, "With the dawn of the AI agent era, the addressable market for AI infrastructure providers like Alibaba is set to grow exponentially."
Wu stated that Alibaba's goal over the next five years is to exceed $100 billion in combined cloud and AI external revenue, including revenue from its Model-as-a-Service (MaaS) platform. This figure represents roughly 61% of the company's annualized revenue run rate.
Image source: Alibaba Group Holding Ltd.
A dirt cheap stock in need of a catalyst
With its shares trading at only 12 times projected 2027 earnings, a good argument could be made that Alibaba is a value stock. However, it's a dirt cheap stock in need of a catalyst for a rebound to materialize.
What might that catalyst be? It probably won't be a spin-off that excites investors, at least not anytime soon. Although Alibaba hasn't ruled out an initial public offering of its T-Head Semiconductor subsidiary that makes AI chips, the company doesn't have a definitive timeline for moving forward.
Perhaps the most likely spark for Alibaba will come from advances in AI and increasing demand for the company's AI technology. Wu noted in the recent earnings call that "AI today is evolving at a pace that's measured in weeks or in months." He added, "That's precisely why we're making significant investments on the AI front."
Some investors may think that a rebound for this AI stock is years away. However, the rapid rate of AI progress just might prove them wrong.
