Rising competition with Meituan (HKG:3690) is turning into a costly endeavor for Alibaba Group Holdings (HKG:9988), S&P Global Ratings said in a Wednesday release.

Alibaba's EBITDA will decline by about a third in 2026 given the increasing rivalry between the companies and rising promotion spending in the quick commerce segment, S&P said.

On the other hand, S&P sees better unit economics with price subsidies peaking last summer, with the company's improved scale to provide efficiency gains.

The rating agency believes quick commerce will provide a sizable contribution to the company in the future as it becomes profitable in fiscal 2029.

Expanding cloud demand should offset the company's rising Al investments, especially with more robust Al capabilities compared to peers, S&P said.

The rating agency reduced its fiscal 2026 EBITDA estimate to about 70% of the fiscal 2025 peak from a previous 80% forecast.

A solid position in China e-commerce, healthy cloud segment growth, and material net cash position anchor the company's overall credit profile, S&P said.