Alibaba Group Holding’s aggressive infrastructure expansion plan will cost RMB 380 billion over three years for AI and cloud development, leading to margin compression. Customer management revenue is projected to grow 10% in fiscal 2026, but profitability concerns persist. Tencent’s capex decreased 24% in Q3 2025, boosting operating margins, while Baidu reported negative free cash flow and a 61% operating loss margin.

BABA shares have surged 34.3% in the past six months, outperforming the industry. The stock trades at a forward 12-month price/sales ratio of 2.35X with a Value Score of D. The Zacks Consensus Estimate for fiscal 2026 earnings is $6.48 per share, indicating a 28.08% YoY decline. Alibaba currently has a Zacks Rank #5 (Strong Sell).

Alibaba’s massive technology investments raise concerns about profitability. The company faces challenges in converting AI momentum into sustainable returns. Tencent and Baidu take different approaches to balancing AI investment with profitability. Tencent’s capex declined in Q3 2025, improving margins, while Baidu’s aggressive strategy continues to compress profitability despite AI cloud revenue growth.

Investors are questioning Alibaba’s profitability trajectory as free cash flow remains negative due to data center expansion and quick commerce subsidies. Alibaba’s AI monetization strategy will need to justify the high capital intensity. Download Atomic Opportunity for more insights on investment opportunities and stock picks set to double in value in the months ahead.

Read more at Nasdaq: Will Rising Capex Pressure Hurt Alibaba’s Margin and AI Strategy?