Many big tech companies are spending heavily on developing artificial intelligence and building out data centers to support the megatrend. Investors, however, remain unsure about most of those spending plans, sending many stocks lower in 2026 as capital expenditure and research and development budgets move higher. That's created plenty of buying opportunities for investors looking to build positions in AI stocks.
Even if you have just $150 to add to your portfolio, there are several great opportunities. One that stands out as a no-brainer right now is Alibaba Group (BABA 3.88%). Here's why it's worth a closer look.
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A tale of two businesses
Alibaba is one of the largest e-commerce companies in China, but it's struggling to compete with PDD Holdings and ByteDance's growing social commerce through its Douyin app (China's TikTok). It's also spending heavily on building its quick-commerce business, which aims to deliver items and food within 30 minutes of ordering.
The e-commerce business is now a slow-growing, mature business. While growth initiatives like quick commerce hold potential to expand the addressable market, they currently remain a drag on profitability. That said, quick-commerce revenue climbed 57% year over year last quarter, reaching about $2.9 billion. Alibaba also sees potential to support its e-commerce business with AI, integrating its Taobao and T-mall properties with its Qwen AI app.
Overall, e-commerce revenue climbed 6% last quarter. Nonetheless, it remains a key cash flow generator. That cash is currently being funneled into Alibaba's AI efforts.
Alibaba's AI + Cloud business produced revenue growth of 38% last quarter, with 40% growth from external customers. That's been accelerating over the past few quarters, and it should continue to do so over the course of 2026. AI-related revenue, in particular, posted an 11th straight quarter of triple-digit revenue growth. CEO Eddie Wu expects AI revenue to account for half of the segment's total revenue within a year, making it the primary growth engine for the cloud business.
NYSE: BABA
Key Data Points
Alibaba is also seeing strong momentum with developers using its AI models, including its flagship Qwen model. Management expects its AI services' annualized recurring revenue to triple to RMB 30 billion in the second half of the year. Importantly, that's high-margin revenue.
Management also expects to produce margin expansion for the cloud business thanks to its proprietary AI accelerator chips. It recently announced the next generation of its high-end Zhenwu chip series, the M890. It's the only Chinese cloud provider developing and sourcing its own chips, giving it more control over its supply chain. Wu said, "In an environment of compute scarcity, this structural advantage is favorable to our revenue growth and gross margin improvement," during the company's earnings call.
The massive investments in AI have also been a drag on profitability. Alibaba reported a small operating loss last quarter, compared to a profit of about $4 billion in the same quarter a year ago. Management primarily attributes that drop to its investments in AI.
But the strong momentum the company is showing in its cloud computing business should lead to a quick turnaround in profitability. With shares trading around $130, they sport a forward P/E ratio of just 19 and an EV-to-EBITDA ratio of 13.5. That's despite expectations that earnings per share will climb at an average rate of 24% over the next three years, with strong acceleration in the out years. That makes Alibaba stock a no-brainer for anyone looking to invest $150 in AI.
