Is Alibaba Stock a Buy as It Reveals It's Behind the Viral Happy Horse AI Model?

Alibaba (BABA) is finding itself in the spotlight once again, but this time it's not due to ongoing corporate restructuring or the performance of its e-commerce business. Instead, investors are focused on how the tech giant is playing a major role in the development of AI in China. More precisely, reports recently emerged about how Alibaba is the developer behind the Happy Horse text-to-video AI model that briefly topped global charts.

While investors used to care about whether or not Alibaba had turned the corner, it appears the question is not as relevant. Now, people are wondering whether or not Alibaba's AI performance will cause the price of BABA stock to go higher. Indeed, this is an area where Big Tech has been waging an aggressive war around the world, with China increasingly trying to catch up.

About Alibaba Stock

Being one of the biggest technology companies in China, Alibaba operates several segments, including e-commerce services, cloud computing, digital media, and even logistics. Headquartered in Hangzhou, Alibaba enjoys a market capitalization of $305 billion, making it one of the most significant players in the economy.

Shares of BABA stock currently trade near $131, which is roughly 32% below the 52-week high of $192.67. However, since reaching a low of $103.71 in July 2025, BABA stock has recovered by 26%, although it still lags significantly against broader benchmark indexes like the S&P 500 ($SPX).

As for the valuation, BABA trades at a forward price-to-earnings (P/E) ratio of 19.8 times, with a relatively low price-to-sales (P/S) ratio of only 2.06 times for a company with an AI business and a dominant cloud platform. The balance sheet also looks healthy enough with a net profit margin of 13.06% and relatively low leverage.

Alibaba Missed on Earnings

It is hard to describe Alibaba's latest quarterly results as anything other than disappointing. For one, revenues grew by just 2% year-over-year (YOY), although they were actually up by 9% once adjusted for divestitures. This is not too bad — but it's nothing exceptional, either.

The same cannot be said about profitability during the quarter. Operating income plunged by 74% YOY, while adjusted EBITA fell 57%. Similarly, net income showed a sharp decrease as the company invested heavily in AI, cloud, and consumer-oriented projects. Finally, free cash flow decreased by 71% YOY.

However, as pointed out above, the reason behind all of these moves lies in Alibaba's strategy. Accordingly, revenue growth in the cloud segment was up by 36%, with AI products “delivering triple-digit growth for the tenth consecutive quarter.” At the same time, the number of monthly active users (MAU) of the company's AI ecosystem Qwen exceeded 300 million. Therefore, while Alibaba's earnings clearly missed forecasts, its strategy might prove successful.

What Do Analysts Think of Alibaba Stock?

Analysts are quite optimistic regarding the prospects of BABA stock, providing an overall “Strong Buy” consensus rating. Further, the mean target price is $183.42 per share, representing potential upside of about 40% compared to current levels. While the lowest estimate is still as high as $135, the highest estimate is $206.10.