What Wall Street experts are saying about Alibaba ahead of earnings
Alibaba Group (BABA) is scheduled to report results of its fiscal third quarter of FY24 before the U.S. market opens on Thursday, February 20, and will hold a conference call to discuss the results at 7:30 a.m. U.S. Eastern Time the same day. What to watch for:
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EXPECTATIONS: Current consensus adjusted EPS and revenue forecasts for Alibaba's December-end quarter stand at $2.64 and $38.23B, respectively, according to data from Bloomberg.
AI: Along with its last earnings report, Alibaba said growth in its Cloud business accelerated from prior quarters, with revenues from public cloud products growing in double digits and AI-related product revenue delivering triple-digit growth. 'We are more confident in our core businesses than ever and will continue to invest in supporting long-term growth,' added Eddie Wu, Chief Executive Officer of Alibaba Group.
In late January, Alibaba debuted the latest iteration of its artificial intelligence model, 'claiming it surpasses DeepSeek's AI model across various benchmarks,' wrote The Wall Street Journal's Kimberley Kao. 'The company stated that Qwen2.5 Max 'achieves competitive performance against the top-tier models,' referencing OpenAI's GPT-4o, DeepSeek-V3 and Meta's Llama-3.1-405B, based on its compiled comparison using various benchmark tests,' noted the WSJ story.
Afterward, Goldman Sachs reiterated a Buy rating and $117 price target on Alibaba, noting that after three different Chinese AI model launches, Alibaba Cloud announced the launch of its latest multi-modal vision-language model Qwen2.5-VL, which is open source, just like DeepSeek's Janus-Pro. The firm believes increasingly agile Chinese models and significant improvement in computing cost efficiencies could drive further room for wider adoption/exploration/proliferation of AI applications and potential for further global expansion for Chinese players. Goldman added that the stock's then-current market cap had already priced in the unfavorable e-commerce competition.
The buzz around DeepSeek, a Chinese-built large-language open-source model that claims to rival offerings from OpenAI's ChatGPT and Meta Platforms (META) but using a much smaller budget, sent several technology stocks tumbling on January 27. DeepSeek's new AI model was being praised for being cost-effective and capable of running on less-advanced chips, which raised questions about the high valuations of companies like Nvidia (NVDA).
Jefferies views DeepSeek's launch 'as part of an ongoing evolution, not revolution' and called the selloff in software stocks 'largely overdone.' Innovations which continue to drive increasing efficiency at inference, but also training, will further improve the return on investment of artificial intelligence, leading to faster software adoption, the analyst argued. Inference efficiency is part of an ongoing trend with DeepSeek and not as incremental as some lead to believe, according to Jefferies.
On February 7, Alibaba denied reports that the company plans to invest in DeepSeek, a Chinese-built large-language open-source model that claims to rival offerings from Microsoft-backed (MSFT) OpenAI's ChatGPT and Meta Platforms but using a much smaller budget, Reuters' Brenda Goh reported. Citing Chinese news outlet The Paper, Goh said that Yan Qiao, a vice president at Alibaba, wrote on her personal WeChat feed that 'as a fellow Chinese and Hangzhou company, we applaud DeepSeek, but news circulating that Alibaba will invest in DeepSeek is fake news.' Previous reports indicated Alibaba planned to invest $1B into DeepSeek.
On February 10, after speaking with more than 100 investors over preceding few days, JPMorgan analyst Alex Yao said he sensed an 'increasingly positive' sentiment on Alibaba shares, which the firm says was evidenced by a 13% share price rally in the prior five trading days. However, there are still mixed views and positions on the stock, which indicates 'room for share price movement on both sides,' the analyst told investors at that time. JPMorgan believes investors are divided on the potential upside from Alibaba's artificial intelligence initiatives and cloud business. The firm thinks demonstrating a concrete plan for monetizing AI capabilities 'could alleviate investor concerns about the sustainability of the current rally.' JPMorgan has an Overweight rating on Alibaba with a $125 price target.
APPLE PACT: Earlier this month, Reuters' Casey Hall reported that Alibaba will partner with Apple (AAPL) to support iPhones' AI services offering in China, citing confirmation from the Chinese company's chairman. For Alibaba, the partnership is a major win in China's competitive AI market that is home to DeepSeek, which made headlines this year with models developed at a fraction of the cost of Western rivals, the author noted. The landmark deal also resolves months of speculation over Apple's AI strategy in the region as the iPhone maker had been in talks with Chinese tech leaders including Baidu (BIDU), ByteDance and Tencent (TCEHY), Reuters and the Information have reported.
After The Information initially reported that Apple partnered with Alibaba to bring Apple Intelligence features to iPhone users in China, Morgan Stanley said that the firm views the pact as 'a critical catalyst for Apple's competitive standing in China.' While acknowledging having no knowledge of Apple's internal decisions, Alibaba is the largest e-commerce player in China, so it could have 'a treasure trove of data that Apple could look to leverage in delivering personalized GenAI features to Chinese consumers,' says the analyst, who adds that the firm could also see a scenario where Apple creates an initial AI partnership with Alibaba that eventually expands to other local Chinese cloud players over time.
Meanwhile, BofA analyst Wamsi Mohan noted that Apple's smartphone share has been pressured in China, and while it was announced last year that Apple was partnering with Baidu for AI in China, Apple ended the project because Baidu's models developed for Apple Intelligence were not up to Apple's standards. The Alibaba partnership news shows Apple's desire to swiftly launch AI features in China, BofA says.
SENTIMENT: Among analysts tracked by Bloomberg that have updated their views on Alibaba within the last twelve months, 41 have Buy or equivalent ratings, eight have Hold or equivalent ratings and only one has a Sell or equivalent rating. The average twelve month price target of 30 of those analysts is $124.32.
Check out recent Media Buzz Sentiment on Alibaba as measured by TipRanks.
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Read More on BABA:
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The company also has a high-end sub-brand called Yangwang, which prices cars at well above 1 million yuan. Analysts that still like the stock see potential in BYD's overseas expansion. The narrative on BYD among European investors "sounds more optimistic," contrary to more cautious sentiment in China following the automaker's recent price promotions, JPMorgan's Nick Lai, head of Asia Pacific auto research said in a report Wednesday. Lai and his team also cited conversations with senior BYD management in London in the last week. "All in all, we retain our long-term positive view on the company and believe the (earnings) contribution from the overseas market and BYD's premium portfolio will increasingly play an important role," the JPMorgan analysts said. "We estimate that BYD's overseas business and premium brands will together contribute over 40% of its vehicle earnings in 2025 (up from 20-25% last year) even though they account for only about 20% of volume." The analysts rate BYD overweight, with a price target of 600 HKD. However, the risk of a flood of cheap cars into markets such as Europe have prompted tariff increases. In China, official commentary is also sounding the alarm about excessive competition. "We believe an end to the current price war will come down to simple economics," the Macquarie analysts said, pointing out that production capacity for both electric and traditional vehicles is more than 50 million units, well above the annual wholesale volume of 25 million to 27 million vehicles. "Thus, the market will likely stabilize either via higher demand or right-sized capacity and consolidation," the analysts said. "We believe this may take at least another three to five years." — CNBC's Michael Bloom contributed to this report.
