Alibaba Runs on AI Hype: The Drivers and Dangers

• Alibaba (BABA) opened up 9% today and is up over 50% in the month of September

• The move today was spurred by a $50 billion+ investment into AI infrastructure

• The pivot to AI creates numerous opportunities and risks for the e-commerce giant

AI, Cloud, and Capital: The Drivers of BABA’s Rally

Alibaba has had an amazing September, trading up almost 50% on a plethora of bullish news. Today, the stock opened up 9% from yesterday’s close on the most recent piece of bullish news: the launch of Qwen3-Max, Alibaba’s latest and greatest AI model. Qwen3-Max is a large language model with over one trillion parameters, positioning it as one of the largest models worldwide. 

The launch came alongside a commitment from CEO Eddie Wu that the company will invest 380 billion yuan, or $53 billion, into AI infrastructure over the next three years. These major catalysts are flanked by smaller tailwinds, such as Alibaba’s Cloud/AI division reporting 26% year-over-year revenue growth, and Alibaba’s data center expansion into Brazil, France, and the Netherlands. 

Institutional and retail investors are aligned in the sentiment that Alibaba’s investment into AI will spur growth; Cathie Wood’s ARK funds disclosed a $16.3 million investment into BABA, which is their first investment in the company in years. 

The Case for Long-Term Growth at BABA

There are a number of reasons to believe that this move in BABA’s share price is substantiated and that momentum could continue. Chief among these reasons is the aforementioned investments into AI and cloud services; Alibaba is positioning themselves as a full-stack AI services and infrastructure company, rather than purely e-commerce. 

Furthermore, Alibaba already has massive scale across commerce, logistics, and cloud, meaning integrated AI adoption could unlock previously unseen or inaccessible synergies across their revenue streams. 

Alibaba also has a leg up on account of being headquartered in China. Recent Chinese policies have showcased the country’s desire to keep AI infrastructure entirely domestic. As such, Alibaba pushing heavier into chips and self-reliant cloud infrastructure reduces dependence on foreign tech and increases the country’s dependence on the company. 

Potential Pitfalls for BABA Investors

While the bullish case for BABA is strong, there are also an equal number of reasons to believe that the run could end soon. For one, AI infrastructure is extremely expensive, and deploying trillion-parameter models and global data centers will bring on high burn and long payback windows. 

Finances aren’t the only potential pain point with the AI pivot, either. Alibaba is subject to Chinese regulatory scrutiny, and future crackdowns or tighter controls on tech, data, or AI could derail this momentum. There are also concerns that these heavy investments into AI could lead to underperformance in their core commerce and international segments, leading to a dependency on their AI and cloud segments in the future to rescue the narrative. 

There are also obvious competitive constraints for Alibaba. Domestic competition from Baidu, Tencent, Huawei, DeepSeek, and the like could easily limit Alibaba’s AI upside. China’s semiconductor bottlenecks and export restrictions from the United States could also make scaling their AI and cloud segments more difficult than it is for their foreign competitors. 

Additionally, the market setting Alibaba’s valuation too high is a concern. Investor expectations are inflated, and if growth or margins fall short, multiples could contract sharply. Many analysts warn that the stock price may not reflect reality, and even more analysts have flagged that consensus estimates for Alibaba’s FY2026 earnings suggest a 10% year-over-year decline due to rising costs. 

BABA’s Next Moves: Opportunities and Risks

With Alibaba firmly established as an e-commerce giant and now pivoting into the AI and cloud space, there are no shortage of variables that investors will keep their eyes and ears open for. Primarily, especially in the context of their recent move, will be adoption and monetization of Qwen3-Max. The timeline for moving from R&D into revenue-driving features will be critical. 

Additionally, margins in their cloud and AI segments will be big; if operating leverage kicks in, there could be higher highs, but if incremental spending dilutes margins, Alibaba may have to reposition. The aforementioned regulatory developments in China and global AI governance policies will also be a major factor to watch. 

Lastly, funding sources for this AI push could also move BABA’s share price in the future. If the company is forced to dilute shares to raise capital, that would obviously work as a bearish variable; if they have internal cash on hand, that could push shares higher.

Gus Downing is host of the tastylive Network show Risk and Reward. @GainsByGus

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