Alibaba shares fall as AI spending pressures trigger target cuts

Thursday 09 - 17:45

By: Dakir Madiha

Alibaba shares fall as AI spending pressures trigger target cuts

Alibaba shares declined in Hong Kong after analysts at Jefferies and UBS lowered their price targets, citing rising artificial intelligence costs and widening losses in non-core businesses.

The stock fell 2.9 percent to 122.70 Hong Kong dollars, underperforming the broader Hang Seng Index, which slipped 0.6 percent during the session.

Jefferies analyst Thomas Chong cut his US-listed price target for Alibaba to $185 from $212 while maintaining a buy rating. The revision marks the third downgrade since January, when the target stood at $225. The adjustment reflects expectations of higher promotional spending tied to Alibaba’s Qwen AI offerings and deeper-than-expected losses in peripheral business segments.

Alibaba has significantly increased spending to promote its AI chatbot. During the Lunar New Year period, the company allocated around 3 billion yuan, equivalent to roughly $431 million, to drive user adoption of Qwen. The campaign relied on incentives such as digital red envelopes distributed across platforms including Taobao, Alipay, and Fliggy, highlighting an aggressive push to scale its AI ecosystem.

UBS also revised its outlook. The bank lowered its target price for Alibaba’s Hong Kong-listed shares to 166 Hong Kong dollars from 185, while maintaining a buy recommendation. It forecasts fourth-quarter fiscal 2026 revenue at approximately 237 billion yuan, largely flat year-on-year.

However, UBS expects losses from Alibaba’s non-core divisions, including AI model training costs, to widen to around 20 billion yuan for the quarter. The bank reduced its adjusted earnings per share estimates for fiscal years 2026 through 2028 by between 8 percent and 21 percent to reflect accelerating AI investment.

These downward revisions follow weaker-than-expected quarterly results reported in March. Alibaba posted revenue growth of just 2 percent year-on-year, reaching 284.8 billion yuan. Adjusted EBITA dropped 57 percent, while non-GAAP net income declined 67 percent, reflecting heavy spending on rapid commerce, user acquisition, and AI infrastructure.

Other analysts have echoed similar concerns. Susquehanna analyst Shyam Patil lowered his price target to $170 from $190, noting that the current investment cycle is weighing on near-term profitability despite strong growth in Alibaba Cloud, where revenue rose 36 percent.

At the same time, Alibaba continues to advance its AI capabilities. Its association with the Happy Horse 1.0 video generation model, which recently ranked highly on Artificial Analysis benchmarks, has drawn attention to its technological progress. Still, analysts remain focused on whether the company can translate rising AI investments into sustainable financial returns.

The market reaction underscores a broader tension facing major technology companies. As competition intensifies in artificial intelligence, firms are increasing spending to secure long-term positioning, even as short-term profitability comes under pressure.