BABA · Alibaba $113.57 +5.03 (+4.63%) 2026-SEP-18 12:48 EST

Alibaba is China's largest e-commerce company, and — the part this note is really about — the operator of China's largest cloud computing business, renting out servers and AI computing power the way Amazon Web Services does in the West. Haymaker has described it as China's Amazon and Google rolled into one.

The position is down about 20% since the May recommendation at $162.11, and Hay does not soften that: "the 20% loss is real and it's been a painful few months to be a holder." What he does instead is ask a better question than "is it down?" — namely, has the evidence behind the original reason for owning it got better or worse since?

The last quarter looked bad on the surface. Revenue grew 9% and beat expectations, but profit per share came in far below what analysts wanted. The reason for the shortfall is the crux: Alibaba is spending enormous sums building AI data centres, and that spending runs straight through the profit line today while the benefit arrives later. Hay's phrase is that the miss is "the accounting cost" of building the advantage — a company that is investing heavily looks less profitable than one that isn't, even when the investment is the whole point.

Meanwhile the part of the business the thesis rests on accelerated: cloud revenue grew 45% from a year earlier, its fastest in 22 quarters, and AI-specific product revenue tripled or better.

The new development since May is Qwen, Alibaba's family of open-source AI models. "Open-source" here means the model itself is published for anyone to download, run and modify for free, rather than being locked behind a company's paid service. Qwen has passed 3 billion downloads and now accounts for more than half of all open-source AI model downloads worldwide — outpacing Meta's Llama, the previous default, by more than 13 to 1 — with over 300,000 modified versions built on top of it and Hugging Face, the main hub where developers share models, calling it the default starting point. A version released on August 14 took 3 million downloads in a weekend and runs on ordinary consumer hardware rather than a data centre.

Giving software away only helps if it sells something. It does: developers who build on Qwen tend to rent Alibaba's servers to run their applications, which is why Hay treats the 45% cloud growth as the commercial proof that the free model is working as a funnel rather than as charity.

On price: a company with $148 billion of trailing revenue and $15 billion of net income trades 46% below its own historical average earnings multiple, with a PEG of 0.59. PEG divides the P/E by the growth rate — below 1 conventionally means you are paying less per unit of growth than the growth alone would justify. His conclusion is not that the discount is unjustified but that it has "overshot."

The rating stays a buy, with an unusually blunt condition attached: this is only for people with a long horizon who "can stomach a hefty dose of volatility," and anyone who doesn't fit that description should trim or exit. After the piece was written, Alibaba sold 710 million new shares at an 8.4% discount to raise $10.2 billion, all of it earmarked for AI infrastructure. Issuing new shares dilutes existing holders, which is why the Hong Kong listing dropped as much as 10% at the open — but the order book closed within hours with $28 billion of demand, nearly three times what was on offer, including $6 billion from sovereign wealth funds, and the shares recovered to roughly 1.5% down. Heavy demand from long-term institutional buyers at a discount is the sort of evidence that argues the capital is wanted, not forced.

Alibaba is China's dominant e-commerce and cloud-computing company, and it has now joined the American hyperscalers in raising outside money to fund AI infrastructure: an HK$80 billion (about $10.2 billion) share sale in Hong Kong, earmarked for data centres and chips.

The reason Singh stays constructive is policy rather than the raise. Chinese credit data for July was startlingly weak — new bank lending actually shrank, only the third monthly decline this century, and more than three times worse than expected. Weak lending means weak household and business demand, and in China that is usually the precondition for stimulus rather than a reason to sell: "which I think is going to result in some sort of a Chinese stimulus announced later this year."

So the position is a bet on two things arriving together: a policy response to a visibly weak economy, and a company already investing through the downturn in the one area — AI capacity — that global investors are willing to pay up for.

Alibaba is China's Amazon-plus-AWS: a giant online shopping business (Taobao, Tmall) bolted to a giant cloud-computing business, and now a home-grown AI operation on top. This quarter it sold $39.6 billion of stuff and services, 9% more than a year ago — but the profit it keeps from each dollar fell hard, from 14 cents to 6 cents, because it is pouring money into AI. It spent almost $10 billion in three months on data centres and chips, 75% more than last year, and ended the quarter $6.6 billion short on cash — meaning the business paid out more than it took in.

So why is the author encouraged rather than alarmed? Because the spending is finally showing up as profit in the division doing the spending. Alibaba Cloud's sales grew 45% — the fastest in over five years — while its profit grew 133%, more than doubling. When profit grows much faster than sales, it means the extra sales cost very little to serve: the expensive equipment is already bought and paid for, so each new customer is nearly pure profit. That's what "operating leverage" means, and it's the single best evidence that a big buildout is working rather than just burning money.

The number the author calls the most revealing is the payback period. That's simply how long a piece of equipment takes to earn back what it cost. Alibaba says its AI computers pay for themselves in about three years, and could get to two and a half — while the machines keep working for longer than that. If true, the cash bleeding out today isn't a loss, it's a purchase: money spent early on machines that keep earning long after they've paid for themselves. The honest test is whether that gap holds, because if the machines sit idle or prices fall, the same maths runs the other way.

Alibaba's other advantage is that it owns every layer instead of renting them. It designs its own AI chips (T-Head's Zhenwu, already used by 650+ outside customers), runs its own cloud, and builds its own AI models — the Qwen family, which is "open-weight": Alibaba publishes the models free for anyone to download and modify, rather than locking them behind a subscription like ChatGPT. Three billion downloads later, 300,000 other models have been built on top of Qwen. Giving the model away sounds like leaving money on the table, but it isn't — those developers have to run the model on someone's computers, and Alibaba would rather it be theirs. That business alone is already collecting about $2.4 billion a year. Owning the chips too means Alibaba isn't paying Nvidia's markup, which protects the profit on every one of those sales.

Two things to keep in view. First, the AI apps business — chatbots, the QwenWork office assistant — is losing about $2 billion a quarter, four times last year's loss, on just half a billion of sales. Cloud is earning its keep; the consumer AI products are still purely a bet. Second, the old shopping business is shrinking (−8%), and the thing replacing it is Quick Commerce — 30-minute delivery of food and groceries, which grew 45% and is now bigger than the cloud business. It doesn't make money yet (profitability is targeted for FY29), but it gets customers opening the app daily rather than a few times a month, and management thinks it could eventually be about 30% of everything sold on the platform.

The author owns the stock and calls this the same playbook the US giants are running: spend enormous sums now, prove the returns later. This quarter is the first with real evidence attached rather than promises. Analysis, not a recommendation.

A knock-on beneficiary of the Chinese-AI boom: the hot Chinese AI model "Kimi" runs its computing on Alibaba's cloud for now, which Singh says "should be very good for Alibaba's demand." As cheap Chinese models get more popular, the Chinese cloud that hosts them (Alibaba) sells more compute.

Alibaba is China's e-commerce and cloud-computing giant — think Amazon and Google rolled into one — and it's one of FXI's anchor holdings. Hay points to it as proof the AI story is turning into cash: its Cloud Intelligence arm booked $1.3 billion of revenue in a single quarter and is growing at triple-digit rates. In other words, the AI boom isn't just hype in China — the dominant platform is already monetizing it at scale, which is exactly what has to happen for the FXI bet to work. It's cited here as evidence for the ETF, consistent with Haymaker's longer-standing view to gradually accumulate Alibaba itself.

Alibaba makes Qwen, one of the strong open-source Chinese AI models. The eye-opener: a startup (Fred credits Vinod Khosla) reportedly shrank Qwen 3.6 down to run on an iPhone 17 Pro — meaning some AI tasks might not need a giant data center at all. That's a direct threat to the "we'll need endless chips and data centers" story, which is why he says it should scare Nvidia's Jensen Huang. He's flagging Alibaba as a source of that disruptive efficiency, not recommending the stock.

Alibaba plays both sides of the Chinese AI boom. Its Qwen model family did more than any other to establish China's open-source approach — and now that the strategy has worked, Alibaba has quietly closed the source on its very best Qwen-Max models so it can charge properly for them (about $1 per million tokens, top-tier pricing for a Chinese model). Meanwhile its cloud arm monetizes everyone else's models too: the Bailian platform hosts competitors like Zhipu's GLM, and Alibaba's cloud is one of the places global enterprises go to run Chinese AI.

Goldman is Buy-rated with a $186 target, and benchmarks Alibaba's capex-to-cloud-revenue conversion against Amazon and Google — the framing being that Alibaba is China's closest equivalent to a US hyperscaler: a mega-cap with the balance sheet to keep buying compute through the price war, the flagship model, the cloud distribution, and the coding harness (Qoder) to capture the data flywheel.

Alibaba is China's giant of e-commerce and cloud computing — often called "China's Amazon and Google rolled into one." Haymaker bought it in February as a cheap way to own a Chinese AI leader. The business engine is actually working: its cloud unit is growing ~38-40% and its open-source "Qwen" AI models are among the most widely used in the world.

The problem is the bill. To compete in AI, Alibaba is spending about $56 billion on chips and cloud — so much that it just posted its first operating loss since early 2021, profit (excluding one-offs) fell more than 80%, and it's burning cash instead of generating it. It's the same "we're spending huge sums on AI and the payoff isn't here yet" story hitting U.S. tech giants, but worse because of China's slowing economy and chip-export risks. Then on June 25 Anthropic (the maker of Claude) publicly accused Alibaba of a giant "distillation attack" — allegedly using ~25,000 fake accounts to copy AI-model capabilities — which knocked the stock to a 16-month low as big investors (ARK, Michael Burry) sold. The shares are genuinely cheap against analyst targets, so Haymaker won't sell into the panic, but the broken profits and new legal cloud make it riskier and slower. So it's downgraded from Buy to HOLD: keep a core position if you can tolerate the uncertainty, add only once profits stabilize, and cut if China's economy or the legal situation gets worse.

Alibaba is China's big e-commerce and AI company; its stock is "up a lot." He makes two points at once. Chinese AI is valued at a tiny fraction of U.S. AI ("a thousand Alibabas fit into Nvidia"), so it looks cheap — but he also warns Chinese open-source efforts are "ripping off" U.S. AI spending, a "Pearl Harbor" that erodes the payoff on America's investment.

Alibaba is the Chinese giant Hay describes as "Amazon and Google rolled into one." The stock is down ~25% since he recommended it because its profits look bad right now — but the reason is that it's pouring money into AI (spending growing over 100%), eating losses in food delivery, and building its own computer chips to stop depending on US and Korean suppliers. Those are investments in the future that depress today's earnings. Hay's wry point: if America's big tech companies were judged as harshly for their own AI spending, they'd be in the penalty box too.

So he's not declaring victory — Alibaba stays in the "penalty box" until the spending starts producing returns. But the stock is cheap measured against its sales, and it's a genuinely world-class business, so rather than buy all at once he suggests dollar-cost-averaging: buying a bit at a time on the way, which lowers the risk of being early on a name that's still out of favor.

Alibaba is China's big e-commerce and cloud company. He had trimmed it near the highs and bought some back on the dip — a cheap emerging-market/value addition rather than a deep new thesis.