As Alibaba Launches a New Chip for Agentic AI, Should You Buy, Sell, or Hold BABA Stock?

Over the past 52 weeks, Alibaba (BABA) stock performance has been unimpressive, with the stock remaining sideways amidst volatility. Recently, the company’s Q3 FY26 earnings missed analyst estimates, and that has contributed to the weak sentiment. 

However, there are positive developments amidst the gloom that point to potential for long-term value creation. Recently, Alibaba unveiled the next-generation chip for Agentic AI and inference workloads. According to Alibaba, the chip can be “customized for specific inference workloads, allowing clients to tailor performance to their use cases.” This is a clear indication of the company’s investments yielding results. 

It’s worth noting that Alibaba has set an ambitious target. The company intends to make $100 billion in AI and cloud revenue within the next five years. Further, in the earnings call, the management indicated that an IPO for T-Head (Alibaba’s semiconductor subsidiary) is likely, although there is no “definitive time line.” A possible spin-off in the coming years will be another source of value unlocking. 

About Alibaba Stock

Alibaba is a Chinese technology giant with a focus on e-commerce, logistics, retail, technology, and artificial intelligence. While the company’s e-commerce segment has been the core revenue and cash flow driver in the past, Alibaba is making big investments in AI and cloud computing. 

For the first nine months of FY26, Alibaba has reported revenue of $111.6 billion. For the same period, the company reported adjusted EBITDA and operating cash flow of $13.9 billion and $9.6 billion, respectively. 

Even with ambitious growth plans, BABA stock has declined by almost 30% in the last six months. This seems like a good buying opportunity considering the point that Alibaba is in a phase of transition from an e-commerce giant to AI-driven growth acceleration.

Positives From Q3 Results

For Q3 FY26, top-line growth was just 2%, and the overall performance was below analyst estimates. However, there are multiple positives to note. 

First, in the consumption business (e-commerce group), revenue growth on a year-on-year (YoY) basis was 6%. However, in the AI and cloud business, revenue growth was 36%, with revenue growth from external customers in the cloud business being 35%. Additionally, AI-related products reported the tenth consecutive quarter of triple-digit growth. While the revenue base is still small, the momentum is positive. 

Second, Alibaba reported negative free cash flow of $4.2 billion for the first nine months of FY26. That's, however, due to capital expenditure of $14.2 billion for the same period. These capital investments are likely to translate into growth acceleration in the AI and cloud business in the coming years. It’s also worth noting that Alibaba ended Q3 with a cash buffer of $42.5 billion. Financing big investments is therefore not a concern. 

What Do Analysts Say About BABA Stock?

Based on 25 analysts with coverage, BABA stock is a consensus “Strong Buy.” While 19 analysts have a “Strong Buy” rating for Alibaba, one analyst has a “Moderate Buy” rating, and four analysts have a “Hold” rating. On the bearish side, one analyst has a “Strong Sell” rating. 

The mean price target of $188.58 implies an upside potential of 45% for BABA stock. Further, the most bullish price target of $237 suggests that BABA stock could climb almost 83% from current levels.

Earlier this month, Morgan Stanley named Alibaba as a top pick among Chinese technology giants. With an “Overweight” rating on BABA stock, Morgan Stanley opines that the company is likely to be an “AI winner,” similar to Alphabet (GOOG) (GOOGL) in the United States.

From a valuation perspective, a forward price-earnings ratio of 24 seems attractive. Further, for FY27, analysts expect earnings growth to be robust at 51.7%. Considering the fact that BABA stock has been sideways for an extended period, there appears to be a good buying opportunity.