Tom Shaughnessy
Founding Partner at Delphi Ventures, Co-Founder of Delphi Digital
Alibaba is the cleanest public-market bet that Chinese AI labs are innovating rather than just distilling, and that cheaper models drive more usage. If China is innovating, Qwen drives Alibaba Cloud share; if Jevons paradox holds, Alibaba captures the spend across models, compute, data, chips and apps. AI products are already 30% of Alibaba Cloud's external revenue, above a $5B run rate, and the commerce cash engine can carry it through the capex/revenue mismatch. x.com
Alibaba offers opportunity at $123 as a front-runner in China's AI buildout, particularly if its AI spending shows real returns and it proves it can compete with the US. Over $56 billion of AI and cloud investment over three years has made current free cash flow negative, like US hyperscalers. Cloud growth is expected near 45%, AI products are already 30% of external cloud revenue, and it holds $38 billion of net cash. Cloud growth, capex and guidance will drive the earnings reaction. x.com
Alibaba is a contrarian trade because accelerating demand for relatively cheaper compute is very underappreciated, and China's cloud market is still in its infancy versus the US. Alibaba is a consensus short as upside from closed-source AI looks illusory. x.com x.com
Alibaba's full AI stack is not yet working economically: it loses $4 for every $1 of revenue, and that is the whole thesis risk. AI Labs lost RMB13.9B, cloud profit covers only 41% of that hole, and commerce is still funding the entire AI build. The cloud business works; the full AI stack does not yet. x.com
Alibaba looks solid for a long-term hold heading into earnings, after missing the last four times. Qwen is integrated with iPhones in China and is the most downloaded AI model, Alibaba runs Asia's largest cloud, it launched a new Alipay platform and it sold Lingxi Games for $2B. A miss and drop like Baidu's would be a chance to add. x.com
Alibaba's market cap is only about 10x the next 12 months' sales of its cloud business, so the e-commerce behemoth comes for free. The cloud business now has a $24 billion revenue run rate, growing 38% year over year and still accelerating, and it is early days in China. A post the author replies to counters that Alibaba Cloud's margins are only 3-5% versus AWS's 30%, but Google Cloud's margins three to four years ago versus today show how that can change. x.com x.com
Alibaba's $10.2 billion Hong Kong share placement shows its cash burn has caught up with it, and more dilution is likely. Core China ecommerce makes roughly $30 billion of flat EBIT, half of it reinvested in quick commerce to defend share against PDD. Cloud and AI earns $2 billion of EBIT growing 35% but burns about $10 billion a year in AI-model opex. Pro forma EBIT of about $7 billion collapses after $20-25 billion of annual capex, so Alibaba will keep tapping equity markets. x.com
Alibaba at $110 is one of the most mispriced mega-caps because investors effectively get its AI and cloud business for free. The company is worth about $270B and holds around $70B in cash and liquid investments, while core e-commerce generated almost $5.9B of adjusted EBITA in one quarter, roughly $230B annualized at just 10x. AI and cloud may be Alibaba's most valuable part five years from now. x.com
Alibaba is a sleeper AI winner: AliCloud external revenue grew 40% last quarter, and AI product revenue posted its 11th straight quarter of triple-digit growth. Its roughly 5% CXMT stake, bought for 7.6B yuan, is now worth over $20B. The main risk is distillation: Anthropic raised Qwen with Senate Banking in June, and the administration said in April it would act on Chinese labs pulling from US models. Alibaba denies it, but that is a headline waiting to hit. x.com x.com x.com
Alibaba is tough to hold because it is splitting investment between e-commerce and AI, creating massive execution risk. AI is so capex-hungry that, as Western examples show, Alibaba cannot spread spending and still reach comparable results. The market sees China e-commerce spending, including the quick-commerce race, as having no ROI, and is right. Replies argue Alibaba has no choice; it might still make it, but the risk is that its AI push slows. x.com x.com x.com
Alphabet's AI growth is harder to turn into cash because capacity shortages require rented compute while TPU system sales tie up inventory before delivery. Cloud grew 103%, with system sales contributing meaningfully; management expects rented compute to pressure Q4 Cloud margins. Q3 free cash flow was -$9.1B, partly reflecting inventory build and a one-off EU fine, while AI Mode monetizes less effectively than traditional Search. The dip is probably a buy with a reasonable timeframe. x.com … Show more
