Alibaba Group is expected to report its second-quarter FY2027 results, covering the three months ended September 2026, before the market opens on November 19.

As AI commercialization accelerates, cloud computing margins improve and competition in instant commerce gradually becomes more rational, investors are reassessing Alibaba's growth prospects. Beyond its traditional e-commerce operations, the key question is whether the company's AI investments can translate into sustainable revenue and profit growth.

According to an analysis published by Seeking Alpha, Alibaba is gradually evolving from an internet company primarily exposed to Chinese consumer spending into a diversified technology platform with capabilities spanning AI infrastructure, cloud computing and applications. The analysis argues that Alibaba has made meaningful progress in commercializing AI, and further evidence of sustained growth in its upcoming earnings report could prompt investors to reassess the company's valuation.

What to Expect from Alibaba's Q2 FY2027 Earnings

AI-Related Revenue Maintains Triple-Digit Growth as Commercialization Accelerates

AI and cloud computing are expected to be among the key areas of focus in Alibaba's upcoming earnings report.

According to previously disclosed company data, Alibaba's AI-related revenue continued to grow at a triple-digit year-over-year rate in the first quarter of FY2027, ended June 2026. Its annualized revenue run rate (ARR) reached RMB49.5 billion, equivalent to a quarterly revenue run rate of approximately RMB12.38 billion.

By comparison, AI-related revenue ARR stood at approximately RMB35.8 billion in the fourth quarter of FY2026, equivalent to a quarterly revenue run rate of around RMB9 billion.

Astrada Advisors noted that Alibaba had reported triple-digit year-over-year growth in AI-related revenue for several consecutive quarters. Based on this trend, the research firm estimates that AI-related revenue would need to grow approximately 30% quarter over quarter to sustain a similar year-over-year growth rate.

More importantly, investors are increasingly focused on the relationship between AI revenue and capital expenditures.

According to Astrada Advisors' estimates, Alibaba's AI-related revenue-to-CapEx ratio increased from 0.12x in the first quarter of FY2026 to 0.33x in the fourth quarter, suggesting that the company's AI investments are increasingly translating into revenue.

The ratio edged lower in the first quarter of FY2027, however, primarily because capital expenditures accelerated during the period. Management previously explained that the 75% year-over-year increase in CapEx was largely attributable to the timing of hardware procurement and represented a quarterly-specific factor. Capital expenditures had declined sequentially for three consecutive quarters prior to that.

It is worth noting that the AI revenue-to-CapEx ratio is an estimate by the research firm, rather than a return-on-investment metric directly disclosed by Alibaba.

AI Accounts for 35% of External Revenue

Beyond headline AI revenue growth, improvements in the profitability of Alibaba's cloud computing business are attracting greater investor attention.

In the previous quarter, Alibaba Cloud's adjusted EBITA increased 133% year over year, accompanied by an improvement in the relevant profitability metrics. Meanwhile, AI-related revenue accounted for 35% of Alibaba Cloud's revenue from external customers, highlighting the growing contribution of AI demand to the cloud business.

Astrada Advisors believes these figures indicate that Alibaba's AI investments are beginning to translate into tangible revenue and profit growth, rather than simply driving higher capital expenditures.

Compared with some AI companies that remain in a heavy investment phase, Alibaba is seeking to strike a balance between infrastructure development, commercial monetization and profitability.

In the upcoming earnings report, investors will be watching closely to see whether AI-related revenue can sustain triple-digit growth and whether Alibaba Cloud can deliver further improvements in its adjusted EBITA margin.

Continued rapid AI revenue growth, alongside a stabilization in the pace of capital expenditure growth, would help ease concerns over pressure on free cash flow.

Core E-commerce Growth Remains Under Pressure, With CMR a Key Metric

Despite the strong momentum in AI, Alibaba's traditional e-commerce business continues to face challenges from subdued Chinese consumer demand and intense industry competition.

Astrada Advisors argues that investors should pay closer attention to Customer Management Revenue (CMR) than to gross merchandise volume (GMV) growth across Taobao and Tmall. CMR provides a more direct indication of the platform's ability to monetize merchant activity.

In the previous quarter, Alibaba's CMR declined 7% year over year. Even after excluding the impact of revenue offsets from new businesses, the growth rate was just 1%, indicating relatively weak monetization momentum in its e-commerce operations.

According to the analysis, mid-single-digit growth in CMR, excluding the impact of these offsets, would likely be viewed positively by the market this quarter.

Conversely, if CMR remains flat or declines further, it could suggest that Alibaba is having to sacrifice monetization to sustain GMV growth, reflecting mounting competitive pressure on the platform.

As ByteDance and PDD Holdings continue to compete for market share in China's e-commerce sector, Alibaba's ability to maintain its monetization of merchant activity will be critical to investors' assessment of the earnings outlook for its core e-commerce business.

Instant Commerce Competition Eases, With Loss Reduction in Focus

Instant commerce will also be an important area of focus in the upcoming earnings report.

In the previous quarter, revenue from Alibaba's instant commerce business grew 45% year over year, while adjusted EBITA for its China commerce business also improved significantly.

Astrada Advisors believes that as subsidy-driven competition across the industry becomes more measured, unit economics and average order values in instant commerce could continue to improve.

Citing recent financial results from Yum China and Luckin Coffee, the research firm noted signs of improving competitive conditions in the foodservice and on-demand consumption markets, which could provide a more favorable operating environment for Alibaba's instant commerce business.

However, the market's primary concern is not whether instant commerce revenue can continue to grow rapidly, but whether losses in the business are approaching a peak and whether management can establish a clearer path toward breakeven.

Further improvements in unit economics, coupled with reduced reliance on large-scale subsidies, would help alleviate concerns about the impact of instant commerce on Alibaba's overall profitability.

Conversely, a renewed escalation in price competition and promotional subsidies could put margins under renewed pressure.

Forward P/E of Around 16x: Can AI Drive a Valuation Re-rating?

Despite continued progress in AI infrastructure and commercialization, Alibaba still trades at a discount to several large global technology companies.

Astrada Advisors estimates that Alibaba currently trades at approximately 16 times forward earnings, below the valuation multiples of global peers. The firm argues that investors continue to view Alibaba primarily as a proxy for Chinese consumption and e-commerce, with insufficient value being attributed to its AI business and longer-term growth potential.

The research firm maintains a bullish view on Alibaba and believes that a gradual convergence toward peer valuation multiples could imply a U.S.-listed share value of approximately $125-$130.

This valuation range, however, is based on the research firm's own assumptions and estimates, rather than a consensus price target.

At the same time, Alibaba faces several potential risks, including higher-than-expected AI capital expenditures, sustained pressure on free cash flow, a slowdown in AI-related revenue growth and weakening monetization across its e-commerce platforms.

A renewed increase in subsidies across the instant commerce industry could also erode the margin improvements achieved in recent quarters.

For the upcoming quarterly results, the central question for investors will be whether AI commercialization can sustain its rapid growth trajectory and whether improving cloud profitability can offset pressures from e-commerce competition and elevated capital spending.

In the previous quarter, Alibaba's AI-related revenue ARR reached RMB49.5 billion, Alibaba Cloud's adjusted EBITA surged 133% year over year, and AI-related revenue accounted for 35% of the cloud business's revenue from external customers.