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Major Banks Raise Alibaba’s Target Price Amid AI-Driven Growth

Multiple leading investment banks have significantly raised their target prices for Alibaba Group, reflecting growing confidence in the company’s AI and cloud computing strategy. Goldman Sachs has increased its 12-month target price to $160 (HK$156) from $117 (HK$114), marking a substantial increase of over 36%. The investment bank maintains its “Buy” rating on Alibaba, citing stable core e-commerce business and accelerating AI and cloud operations as key drivers for valuation growth.

Broad Market Confidence

The optimistic outlook is shared across major financial institutions:

  • JPMorgan has raised its target price to $170 from $125
  • Citigroup has increased its target to $170 from $138
  • HSBC has elevated its target price to HK$156 from HK$125, noting that the AI-driven inflection point has arrived

Strong Quarterly Performance

Alibaba’s fiscal year 2025 third-quarter results exceeded expectations, particularly in AI-related capital expenditure. Key highlights include:

  • Alibaba Cloud revenue growth accelerated to 13% year-over-year, up from 7% in the previous quarter and 3% in the same period last year
  • AI revenue maintained triple-digit year-over-year growth for six consecutive quarters, while public cloud revenue achieved double-digit growth
  • Adjusted EBITA margin for Alibaba Cloud reached 9.9%, improving from 9.0% in the previous quarter and 8.4% year-over-year
  • Capital expenditure surged to RMB 31.8 billion (approximately $4.35 billion), representing a 260% year-over-year increase and 80% quarter-over-quarter growth, primarily driven by increased cloud infrastructure spending

Leading China’s Data Center Industry

Goldman Sachs identifies Alibaba, alongside ByteDance, as one of China’s top two hyperscale cloud service providers in terms of AI capital expenditure. The bank highlights several key initiatives driving Alibaba’s industry leadership:

Infrastructure Innovation

  • Introduction of Panjiu AI servers
  • CPFS storage implementation
  • HPN7.0 network hardware upgrades
  • Enhanced AI training stability and model computation efficiency

Platform Optimization

  • GPU containerized computing through Alibaba Cloud ACS
  • AI computing utilization rate exceeding 90%

Global Expansion

  • New data centers launched in Thailand and Mexico
  • Ongoing construction in Dubai, Malaysia, Philippines, and South Korea

Impact on Data Center Operators

Goldman Sachs projects positive implications for Chinese data center operators, particularly GDS Holdings and VNET Group. The bank notes that Alibaba is GDS Holdings’ largest customer, accounting for 33.5% of total committed area and 30.1% of net revenue in China during Q3 2024.

Valuation Implications

Goldman Sachs suggests that improved market sentiment could lead to higher valuation multiples:

  • GDS Holdings could reach $54.7 per ADS, based on a 15x EV/EBITDA multiple on normalized 2026 EBITDA
  • VNET Group’s data center business could be valued at $17.8 per ADS, using an 11x EV/EBITDA multiple on normalized EBITDA

The bank anticipates that Alibaba’s strategic investments and growth in cloud services will drive broader industry development and potentially lead to a sector-wide revaluation.