Back to top

Image: Bigstock

BABA's Free Cash Flow Turns Negative: Can Heavy Spending Pay Off?

Read MoreHide Full Article

Key Takeaways

  • Alibaba posted RMB 18.8B negative free cash flow on soaring capital expenditures.
  • Cloud revenues grew in the mid-20s%, with AI services showing triple-digit gains.
  • Taobao Instant Commerce hit 80M weekly orders, boosting monthly users by 25%.

Alibaba's (BABA - Free Report) first-quarter fiscal 2026 free cash flow turned negative at RMB 18.8 billion compared with a positive RMB 17.4 billion inflow a year ago. The reversal was largely due to a sharp rise in capital expenditures, which reached RMB 38.7 billion. The bulk of this spending has gone toward building AI and cloud infrastructure and the rapid launch of Taobao Instant Commerce, highlighting the company's aggressive investment stance.

Despite near-term cash strain, these initiatives are already showing results. Alibaba Cloud grew in the mid-20s percent year over year, led by triple-digit gains in AI-driven services. Quick commerce also accelerated, surpassing 80 million weekly average daily orders in August and attracting nearly 300 million monthly active consumers. This lifted Taobao’s monthly active users by 25%, with daily order volumes reaching new highs, evidence that Alibaba’s bets on AI and instant retail are gaining traction.

The company has pledged RMB 380 billion ($52 billion) over the next three years to expand AI infrastructure, build new data centers and develop proprietary inference chips. These investments could accelerate monetization, narrow losses in international commerce and build a sustainable engine for long-term profitability. Reflecting this outlook, the Zacks Consensus Estimate forecasts consolidated revenues to rise 4.38% year over year in fiscal 2026 and 11% in fiscal 2027, indicating confidence in Alibaba's strategic direction.

While competition from AWS, Azure and local rivals, combined with regulatory headwinds, could weigh on returns, Alibaba’s heavy spending today may lay the foundation for tomorrow’s profitability.

Heavy Investment Battle: Alibaba & Its Rivals

Microsoft (MSFT - Free Report) has leaned heavily on an AI-first strategy with a massive capital expenditure of about $65 billion in fiscal 2025 to expand AI-enabled data centers and cloud infrastructure. For the first quarter of fiscal 2026, Azure projects 37% constant-currency revenue growth, underscoring its momentum. With over 400 datacenters, Microsoft offers unparalleled global scale for distributed AI workloads. Its deep partnership with OpenAI enhances Azure's ability to deliver advanced, pre-built AI services. Unlike Alibaba, Microsoft leads in global enterprise reach, hybrid cloud power and tightly integrated AI-cloud solutions.

Oracle (ORCL - Free Report) has reshaped OCI into a leading AI infrastructure force, achieving 55% growth from strong compute demand and AI expansion. Oracle’s role in the Stargate project with OpenAI and SoftBank underscores its ambition. For fiscal 2026, Oracle projects 77% OCI growth to $18 billion, with revenue targets climbing to $144 billion over four years, supported by $35 billion in capex largely directed toward data center equipment.

BABA’s Share Price Performance, Valuation & Estimates

BABA shares have surged 92.5% in the year-to-date period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 13.5% and 9.2%, respectively.

BABA’s YTD Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

From a valuation standpoint, BABA stock is currently trading at a forward 12-month Price/Earnings ratio of 17.55X compared with the industry’s 25.03X. BABA has a Value Score of C.

BABA’s Valuation

Zacks Investment Research
Image Source: Zacks Investment Research

The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $8.09 per share, down 5.7% over the past 30 and 60 days, implying a 10.2% year-over-year decline.

Zacks Investment Research
Image Source: Zacks Investment Research

Alibaba currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Microsoft Corporation (MSFT) - free report >>

Oracle Corporation (ORCL) - free report >>

Alibaba Group Holding Limited (BABA) - free report >>

Published in