BABA:Solid AI Demand in China, but Revenue Divergence Persists Among Investors

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Our recent checks suggest Alibaba Cloud's revenue this quarter could fall within a relatively wide range of RMB 30.5–32.0B. The primary reason for this spread stems from RMB 7.5–9.0B in internal revenue (i.e., transfer payments from internal businesses like Taobao or Quark), which are booked based on varying gross margin assumptions (15% vs. 25%). Given these are intra-company transactions, financial adjustments can vary significantly. A RMB 30.5B print would imply ~19% YoY growth; RMB 32.0B implies ~25% YoY.

Buy-side expectations are notably split: U.S./European funds generally model ~18% YoY growth, while some domestic Chinese funds expect closer to 23%. Management previously guided that “Consensus rev high teens reasonable - Hard to jump from 3Q 13% to 25% in one quarter- Cloud margin consensus 9% not much pushback ”

Notably, Alibaba Cloud outperformed revenue consensus by ~3pts last quarter (10% consensus, 13% reported). Based on this trend, we think an approximate 20% growth this quarter is most realistic.

Investors continue to look for a steady acceleration trend in cloud revenue. However, based on current customer and supply chain interviews, FY26 growth in the 20–25% range seems achievable as ou, but not beyond that. If this quarter hits >23% growth, Alibaba would need to guide FY26 to 25–30%, which appears overly ambitious at this point.