Alibaba Group (NYSE:BABA; HKG:9988) shares edged up 0.9% to $113.33 in late morning New York trading on Monday, extending gains after a 15.6% surge in Hong Kong over the previous four sessions. The advance stood out as the Nasdaq Composite fell 0.8%, pressured by geopolitical tensions between the U.S. and Iran and a decline in chip stocks. Alibaba's Hong Kong-listed shares ended Monday 0.45% higher at HK$110.70, after touching an intraday high of HK$115.10.
The key question for investors now is whether Alibaba's cloud computing division can accelerate enough to offset further profit erosion in its core commerce business. BofA Securities projects June-quarter group revenue growth of 8.8% year-over-year, with cloud sales accelerating to 45% growth from 38% in the prior quarter. The brokerage also expects the cloud unit's margin to improve to 11% from 9%. BofA maintained its Buy rating on the stock, with price targets of HK$168 for the Hong Kong listing and $172 for the New York-listed shares.
BofA's forecasts place a heavy emphasis on cloud performance relative to the headline growth number. Based on the June 2025 quarter's group revenue of RMB247.65 billion and cloud revenue of RMB33.40 billion, BofA estimates imply June 2026 total revenue of approximately RMB269.44 billion and cloud sales of around RMB48.43 billion. This would see cloud's share of group sales rise from 13.5% to 18.0%.
The arithmetic is telling. Cloud is expected to contribute roughly RMB15 billion of Alibaba's anticipated RMB21.8 billion sequential revenue increase, representing about 69% of the total sales growth. Applying the forecast 11% cloud margin yields around RMB5.3 billion in profit from the unit, but that accounts for only 20% of BofA's RMB26.2 billion estimate for group adjusted EBITA—operating profit before interest, taxes, and amortization, with certain adjustments.
Alibaba's management has kept the trade-off between growth and profitability front and center. CEO Eddie Wu stated in May that technology investments "are beginning to pay off commercially," but emphasized that margin is "still secondary" as the group prioritizes growth and market share. The company subsequently indicated expectations for improved cloud margins in the coming one to two quarters. BofA's 11% margin estimate provides an early glimpse of that trajectory.
Chairman Joe Tsai framed the heavy spending as a response to capacity constraints rather than weak demand. "In the China context, we're very underinvested in infrastructure and in the AI supply chain," he said in June. Alibaba has outlined plans to invest more than $53 billion in AI and cloud infrastructure over three years, backed by $25 billion in annual free cash flow from its core commerce business—cash remaining after operating and capital expenditures.
BofA's model also highlights significant risks. The bank sees customer management revenue—which includes advertising and merchant service fees—falling 7.7%. Group adjusted EBITA could decline 33% to RMB26.2 billion. The brokerage forecasts approximately RMB10 billion in new-retail losses and another RMB17 billion in losses from other businesses. If cloud underperforms, margin gains slip, or spending on quick commerce—rapid delivery within an hour—escalates, investors remain exposed to high infrastructure costs while the commerce profit pool stays under pressure.
Chinese internet stocks traded mixed on Monday, with no clear thematic direction among AI-related names. JD.com (NASDAQ:JD) gained 2.8% to $28.99, while Baidu (NASDAQ:BIDU) fell 1.9% to $115.31. Alibaba's 11% surge to $108.98 on Wednesday was followed by a more modest gain on Monday, with most of that advance holding up even as U.S. tech indexes slipped.
Alibaba's June-quarter results will serve as a critical test on two fronts. Investors need proof that AI demand is translating into higher cloud revenue, not just increased costs. They also require evidence that losses in other business lines are narrowing fast enough to sustain the group's aggressive investment strategy. The AI narrative drove the recent rally. How much of that sticks will depend on the numbers behind it.
