Brokerage firm Nomura has maintained a 'Buy' rating on Alibaba Group, highlighting the company’s strategic push into AI and cloud services. While domestic ecommerce revenue faces pressure, the firm believes these technology pillars will drive long-term value. Investors are currently weighing this growth potential against the rising costs of AI infrastructure investment.
Nomura has retained its 'Buy' rating on Alibaba Group, signaling confidence in the company’s long-term pivot toward artificial intelligence and cloud computing. The brokerage identifies these business segments as critical drivers that are expected to offset the cooling growth seen in China’s domestic retail market.
Alibaba is currently in the middle of a significant structural transition. While the traditional online retail business faces a slower demand environment, the company is prioritizing investment in its cloud and AI capabilities. This shift includes the development of the Qwen foundation models and various software services. Nomura expects these segments to become major contributors to future earnings, even though the AI divisions are currently operating at a loss while they scale.
The company’s recent financial performance highlights the impact of this heavy investment cycle. In the June 2026 quarter, Alibaba reported a 9% year-on-year revenue increase. However, net income and operating margins have declined compared to previous periods. This drop is primarily due to the high costs associated with building data centers and training AI models. Currently, the stock has been trading in the $105 to $110 range, reflecting market uncertainty as shareholders monitor how the company balances its massive spending with the need to preserve cash from its retail operations.
For investors, it is important to consider the potential risks. The most immediate challenge is the downward pressure on profit margins caused by aggressive spending on AI infrastructure. The company’s ability to turn these investments into consistent profit remains the main test for its new strategy. Furthermore, Alibaba continues to operate within a complex regulatory environment in China, and geopolitical tensions remain an ongoing factor that can influence market sentiment.
The success of this transition depends on whether the cloud and AI business can scale effectively and eventually replace the cooling ecommerce segment as the primary engine for profitability. Investors will be closely watching upcoming quarterly results for signs that operating margins are stabilizing and that the AI initiatives are successfully moving toward commercialization.