Key Takeaways:
Citigroup reiterated its "Buy" rating on Alibaba Group Holding Ltd., forecasting the company's AI-related cloud revenue will surge to 585.5 billion yuan ($81 billion) by fiscal 2031, driven by its integrated strategy.
"Alibaba is building a vertically integrated AI system from chips to applications, similar to Google's full-stack approach from TPUs to Gemini," analysts Alicia Yap and Nelson Cheung said in a May 11 report.
The bank maintained its $205 price target for Alibaba's American depositary receipts, implying a significant upside from current levels. The forecast projects AI will constitute 70% of cloud revenue by 2031, up from an estimated 15% in 2026, with Model-as-a-Service, or MaaS, expected to account for over half of the total.
The bullish forecast comes as Alibaba prepares to report fiscal fourth-quarter results on Wednesday, with investors watching for signs of AI monetization offsetting weaker earnings. The report positions Alibaba as a top AI pick in China, betting that its massive capital spending and vast ecosystem will secure its place among a handful of global "super-cloud" platforms.
The report signals a fundamental shift in Alibaba's cloud business, moving from traditional infrastructure services to high-growth AI-native offerings. Citi's forecast indicates that non-AI cloud revenue growth will slow to a 13% compound annual growth rate, with its share of total cloud revenue shrinking from 85% in fiscal 2026 to just 30% by 2031.
In contrast, AI-related services are set to explode. The analysts project AI-related revenue will see a 90% compound annual growth rate over the next five years. The core of this growth is the MaaS business, which involves charging customers for API calls to its Qwen large language models. This segment's revenue is forecast to grow at a staggering 235% compound annual rate to 438.6 billion yuan by 2031, becoming the single largest contributor to cloud income.
This transition is supported by a massive capital commitment. Citi estimates Alibaba will spend 822.9 billion yuan on capital expenditures between fiscal 2026 and 2031 to build out its AI infrastructure.
While Alibaba holds a commanding 33% share of China's IaaS public cloud market, according to 2025 Gartner data, it faces intense competition in the AI model space. Data from IDC shows that in the public cloud large-language model market, calculated by call volume, ByteDance's Volcano Engine leads with a 49.2% share, followed by Alibaba Cloud at 27%.
However, Citi's analysts argue that Alibaba's "full-stack" approach, which includes its own T-Head semiconductor unit designing chips comparable to Nvidia's H20, provides a durable competitive advantage. This vertical integration, combined with the vast data and application scenarios from its e-commerce arms like Taobao and Tmall, creates a moat that is difficult for competitors to replicate.
The report reinforces management's goal of achieving over $100 billion in external revenue from cloud and AI within five years. The focus on high-margin MaaS is expected to improve profitability as the company scales. Investors will be closely watching the upcoming earnings report for any commentary on AI investment and the initial contribution from model services.
This article is for informational purposes only and does not constitute investment advice.
