Jefferies Reaffirms Alibaba as Top China Internet Pick on AI Growth Prospects

Jefferies has reaffirmed Alibaba (BABA) as its top pick in the China Internet sector, expressing confidence in the company's execution and the accelerating demand for artificial intelligence. The investment firm's outlook remains positive despite ongoing macroeconomic pressures and weaker consumer sentiment in the region.

Jefferies' Outlook

According to a note from Jefferies, current market valuations for Alibaba already account for the softness in industry-wide gross merchandise volume (GMV) growth. The firm believes Alibaba's core e-commerce operations serve as a strong "cash cow," positioning it to benefit from an eventual recovery in Chinese consumer spending.

The analysts' base case scenario projects that Alibaba will achieve strong market share gains in its Tmall platform while successfully continuing to monetize its AI and cloud offerings. This dual strength forms the foundation of the firm's positive investment thesis.

By the Numbers

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For Alibaba's upcoming June quarter results, Jefferies provided several key forecasts:

• Total Revenue: Expected to grow 9% year-over-year to RMB 270 billion, which is in line with consensus estimates.
• Cloud Intelligence Group: Revenue is forecast to surge by 45% year-over-year, outpacing the consensus estimate of 41%, driven by strong demand for AI services like Model-as-a-Service.
• China E-commerce: Customer management revenue is anticipated to decline by approximately 6.5% year-over-year, reflecting broader industry trends.
• Combined EBITA: For its China e-commerce and international digital commerce segments, earnings before interest, taxes, and amortization are expected to be flat compared to the previous year.

Market Context

The report highlights a key dynamic for investors: while the core domestic commerce segment faces headwinds, the rapid expansion of the Cloud and AI unit is expected to provide a significant growth engine. Jefferies flagged a positive stance on the stock with the expectation that Alibaba's substantial investments in these high-tech areas will continue to yield strong returns.