Daiwa released a research report stating that it has lowered its earnings per share forecast for Alibaba-W (09988) for fiscal years 2026 to 2028 by 6% to 15%, while reiterating a "Buy" rating. This adjustment is primarily based on the company's third fiscal quarter profit falling short of expectations. Consequently, the firm has revised its 12-month target price down to HK$184 from HK$191, based on a sum-of-the-parts (SOTP) valuation method. The report maintains an unchanged long-term view on the group's positioning in AI-driven cloud business but cautioned that further subsidies for user acquisition costs represent a major downside risk.

The report indicated that Alibaba's performance for the third quarter of fiscal 2026, ending last December, was below expectations, mainly due to disappointing revenue growth in the cloud business and the group's overall profitability. During the earnings call, management reaffirmed its medium-term goals, which include achieving $100 billion in revenue from external artificial intelligence (AI) and cloud businesses within five years. Additionally, it expects the gross merchandise volume (GMV) of its quick commerce business to reach 1 trillion yuan by fiscal 2028, with overall profitability turning positive by fiscal 2029.

Daiwa's analysis suggests that the AI and cloud businesses are sharpening their focus on monetization. Revenue from external AI and cloud services for the first eleven months of fiscal 2026, ending February this year, had already reached 100 billion yuan, with overseas markets contributing a high-single-digit percentage. With the average daily token processing volume in March tripling compared to last December, coupled with price increases for cloud products, an acceleration in external cloud business revenue growth is anticipated for 2026. While management did not provide a clear timeline for the IPO of T-Head, it disclosed that its annualized revenue has reached 10 billion yuan, with over 60% of its chips being supplied to external customers, and expects further scale expansion during fiscal 2026-2027. Capital expenditure slightly decreased to 29 billion yuan last quarter, but the report views the total capital expenditure budget of 380 billion yuan as still carrying upside risk.