Alibaba Group (BABA Quick QuoteBABA - Free Report) is doubling down on artificial intelligence infrastructure, raising questions on whether spending will drive value or strain returns. At its Apsara Conference on Sept. 22, 2026, Alibaba Cloud targeted more than 20 gigawatts of global data center capacity by 2032. It also unveiled the Zhenwu V900 AI chip, which offers three times the performance of the Zhenwu M890 and is slated for mass production in the first quarter of 2027. In addition, it plans its first cloud regions in Türkiye, Finland and the Netherlands within 12 months.

Guidance frames the spending as a growth engine. Cumulative AI and cloud capex reached RMB 190 billion through June 2026, half of the three-year RMB 380 billion plan. Alibaba expects annualized AI-related product revenues to approach $10 billion in the September quarter. It also expects Model and Application Services annual recurring revenues to hit RMB 30 billion by year-end, up from more than RMB 16 billion in August. It expects external cloud growth to keep accelerating with steady margin expansion. It targets a payback period on AI capex of about three years and aims to bring that down to roughly 2.5 years.

Results back this momentum. In first-quarter fiscal 2027, AI Cloud and Compute Services revenues rose 45% year over year to RMB 48.44 billion. AI-related product revenues logged a 12th straight quarter of triple-digit growth, and cloud adjusted EBITA surged 133% to RMB 5.63 billion.

However, costs are steep. Capex jumped 75% to RMB 67.68 billion, free cash outflow widened to RMB 44.67 billion from RMB 18.82 billion, and net income plunged 75% to RMB 10.44 billion. Spending should remain elevated and uneven amid rising component prices, while supply-chain shortages limit how fast capacity can scale.

Alibaba’s AI capex push is a credible long-term catalyst, but near-term pressure on earnings and cash flow makes delivery on payback targets the key swing factor for the stock.

BABA’s AI Capex vs. MSFT and AMZN

Alibaba’s AI spending remains smaller in scale than that of U.S. cloud rivals Microsoft (MSFT Quick QuoteMSFT - Free Report) and Amazon (AMZN Quick QuoteAMZN - Free Report) . Microsoft spent about $190 billion on capex in fiscal 2026 and guided fiscal 2027 capex to roughly $255-$260 billion. Azure grew 43% in the June quarter, and Microsoft expects about 45% growth in the September quarter. Amazon expects 2026 cash capex of roughly $220 billion after spending $53.1 billion in the second quarter, when AWS revenues climbed 36.7% to $42.2 billion. Amazon’s AWS backlog reached $496 billion, yet Amazon expects capacity to trail demand through 2027, while Microsoft’s spending step-up remains steep.BABA’s Share Price Performance, Valuation & Estimates

BABA shares have plunged 25% year to date, underperforming the Zacks Internet – Commerce industry’s 3.6% return and the Zacks Retail-Wholesale sector’s decline of 0.3%, respectively.

BABA’s YTD Price Performance

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From a valuation standpoint, BABA stock is currently trading at a trailing 12-month Price/Earnings ratio of 48.8X compared with the sector’s 27.98X. BABA has a Value Score of C.

BABA’s Valuation

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The Zacks Consensus Estimate for fiscal 2027 EPS is pegged at $6.50, reflecting a 0.8% downward revision over the past 30 days.

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