To The Moon

China's e-commerce and tech giant Alibaba (ticker: $Alibaba(BABA)$) – officially known as "Alibaba Group Holding Limited" – witnessed a price surge after it released the earnings results for the first quarter (Q1) for its Fiscal Year (FY) 2026. The price surge was mostly attributed to its advances in capturing AI spends. 

This surge might be somewhat overstating the advances made by the company. 

Trend Drilldown

In 2023, the company's management moved to consolidate into six distinct entities that could possibly be spun out into six separate companies/tickers. While the logistics arm – Cainiao – worked on an IPO since, the plan was dropped early in 2024. In Q1 2026, the “6 entities” plan has been effectively dissolved. 

As of FY 2024, the company's China e-commerce segment – “Taobao and Tmall” – ruled the roost amongst its businesses trend-wise. 

While the keenly observed “Cloud Intelligence” segment has largely held steady at 11-12% revenue contribution, its EBITA (“Earnings Before Interest, Taxes and Amortization”) is the only steady positive contributors to the bottom line outside of the China e-commerce business. 

In Q1 2026, Alibaba consolidated further into three main segments: the China e-commerce business now includes its travel platform and food delivery business while all other businesses save “Cloud” and “International Digital Commerce” have been lumped into “All Other” in its reporting. Drawing out a trend isn't possible until more details are released (likely in its FY report in nine months). But, for now, “Cloud” seems to be continuing to grow in contribution.

Without accounting for inter-segment eliminations, “China e-commerce” remains by the biggest EBITA contributor by a massive margin while “Cloud” grows in contribution to both top and bottom lines. 

Overall, Alibaba's “Cloud” business underpins further growth in its Earnings Per Share (EPS):

While income from operations spikes on account of continued investment in food delivery and “Cloud” businesses, improving passthroughs in “Cloud” (for the most part) and domestic e-commerce (overall) become the dominant factors behind the growth in EPS. If current trends continue, FY 2026 will close with a 64% growth over the previous FY with more-or-less the same level of revenue as the previous FY. 

The top line (i.e. “revenue”) remaining the same so far stands here: with the domestic e-commerce business registering a massive growth in revenue share, it stands to reason that international commerce and other platforms/services have depreciated in providing passthroughs. “Engagement” is the name of the game in the digital space and it seems – so far – that maintaining high engagement is coming with significant cost, which likely indicates that consumer spending in China is increasingly more cautious and international engagement is proving to be problematic. 

AI carried the day to essentially bring the company to an even keel in the top line: “Cloud” grew 26% year-on-year to net revenues of $4.6 billion and EBITA of $412 million, implying an “EBITA margin” of around 9%. In FY 2023, this was 4%, which had improved to 9% by FY 2025. It's entirely likely that FY 2026 will see “Cloud” break through into the double-digit percentage range in this metric.

However, it bears noting that China e-commerce's “EBITA margin” earned on the back of $12.46 billion in revenue is a solid 43% in Q1 2026 despite absorbing high-cost businesses into its segment. There's a long way for “Cloud” to go before it could beat the importance of the China e-commerce segment or be as vital – although the language employed in the Q1 2026 earnings release certainly suggests that management remains locked in on this. 

Future Trajectory

Given the perceived softness in personal consumption growth, investors interested in the China story are reposing faith in corporate spends in AI being a signal for growth in valuation, resulting a relative narrowing of market breadth. Alibaba's massive reach within China gives it ample cause for being a beneficiary of this increased focus. However, this is an oft-repeated pattern seen since (at least) 2022: the stock's value has witnessed double-digit jumps a number of times before the air comes out and the stock settles down.

While the bottom-line growth trend is encouraging, the top-line trend gives cause for caution. There's a long way to go before a conviction in "AI" is fully realizable as the cause for earnings growth as far as Alibaba is concerned. 

Professional investors with a more tactical bent might find two ETPs particularly interesting for trading strategies: the “3x Alibaba ETP” ($3X BABA(BAB3.UK)$) provides magnified exposure useful during the upsides of the U.S. ticker’s performance while the “-3x Short Alibaba ETP” ( $LS -3X SHORT ALIBABA (BABA) ETP(BA3S.UK)$ ) is of similar utility during the downsides.

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For broader articles that deep-dives into business and culture in Asia, visit asianomics.substack.com. Numerous new articles have been published that fully explain the rationale behind the commentary I’ve made in various media publications in diverse areas such as the factors behind the rise of platinum, the rise of Indian equities in cross-border ETFs, Elon Musk’s so-called “third party”, Europe and India’s lithium battery projects, Trump’s tariffs versus the Indican economy, and much more.