Goldman Sachs raises Alibaba stock price target to $163 on AI focus

Goldman Sachs has raised its price target on Alibaba to $163 from $147, maintaining a Buy rating, while JPMorgan similarly increased its target to $170, citing anticipated efficiency gains in quick commerce. Goldman projects steeper near-term quick commerce losses of 31 billion yuan for the September quarter but expects loss per order to halve by the December quarter, balancing these with faster international e-commerce growth and a lowered sum-of-the-parts discount. This revised outlook comes as Alibaba reported a 10% year-over-year revenue increase for Q1 FY25, despite a decrease in adjusted EBITDA and free cash flow outflow, alongside strategic investments in AI and cloud infrastructure.

Analysis

Major investment banks are signaling renewed confidence in Alibaba, with Goldman Sachs raising its price target to $163 and JPMorgan to $170, both maintaining bullish ratings. This optimism persists despite significant near-term headwinds, including a reported 10% year-over-year Q1 FY25 revenue increase that was coupled with a decline in adjusted EBITDA and a free cash flow outflow. Goldman Sachs projects a substantial increase in quick commerce losses to 31 billion yuan in the September quarter, a sharp rise from the 11 billion yuan loss in the prior quarter. However, the core of the bullish thesis rests on long-term operational improvements. Goldman anticipates loss-per-order will be halved by the December quarter, driven by subsidy normalization and efficiency gains, and has revised its long-term market share assumption for Alibaba's food delivery and quick commerce to 40%. This outlook is further supported by a reduction in Goldman's sum-of-the-parts discount from 20% to 15%, reflecting greater confidence in the streamlined core business. The negative impact of domestic commerce losses on profit estimates is partially mitigated by a faster-than-expected turnaround in international e-commerce and strategic investments in AI and cloud infrastructure.

Key Decisions for Investors

• Investors should weigh the strong analyst consensus and raised price targets against the company's acknowledged short-term margin pressure and cash flow outflow before adjusting positions.
• It is critical to monitor the quick commerce segment's performance for evidence that loss-per-order is decreasing as projected, as this is a key pillar of the current bullish investment thesis.
• Consider the lowered sum-of-the-parts discount as a signal of increased confidence in the core business structure, but track the execution of strategic initiatives in AI, cloud, and international e-commerce as they are key offsets to domestic headwinds.