Alibaba Stock Rises 28% in 6 Months: Hold Tight or Time to Let Go?
Alibaba BABA shares have surged 28% in the past six-month period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector. While the rally has rewarded shareholders, a closer look at Alibaba’s fundamentals, competitive pressures and deteriorating profitability suggests that 2026 may not be the year to stay invested in BABA.
Impressive Rally Masks Underlying Weakness
The 28% gain in BABA stock over six months may look appealing on the surface, but it obscures a troubling disconnect between share price momentum and fundamental performance. In its second quarter of fiscal 2026, Alibaba reported revenues of RMB247.8 billion, reflecting a modest 5% year-over-year increase that was essentially flat on a sequential basis. Non-GAAP diluted earnings plunged 71% year over year to RMB4.36 per ADS, missing analyst expectations by approximately 20%. Total adjusted EBITDA collapsed 78%, largely due to aggressive spending on AI infrastructure and quick commerce subsidies. These numbers paint a picture of a company sacrificing profitability for ambitions that remain unproven.
BABA’s 6-Month Performance
Image Source: Zacks Investment Research
AI Spending Spree Weighs on Margins
Alibaba has positioned itself aggressively in the AI race, and while its Cloud Intelligence Group posted 34% year-over-year revenue growth with AI-related products delivering triple-digit gains for nine consecutive quarters, the costs are staggering. Sales and marketing expenses more than doubled to RMB66 billion as the company battled rivals in quick commerce and poured resources into its Qwen AI ecosystem. In February 2026, Alibaba launched Qwen 3.5, its latest large language model, and committed 3 billion yuan in Lunar New Year incentives to drive adoption. In January, China introduced new e-commerce regulations banning platforms from coercing merchants into discount campaigns, effective February 2026, adding another layer of regulatory uncertainty. Management has acknowledged that the company has entered an investment phase to build long-term strategic value in AI, warning that near-term profitability will fluctuate due to heavy spending. For investors seeking steady returns in 2026, this trajectory is far from reassuring.
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $5.96 per share, implying a 33.85% year-over-year decline.
Alibaba Group Holding Limited Price and Consensus
Alibaba Group Holding Limited price-consensus-chart | Alibaba Group Holding Limited Quote
Forward Guidance Offers Little Comfort
During the second quarter of fiscal 2026earnings call Alibaba’s leadership indicated that customer management revenues would continue growing at a high rate, supported by rising take rates and increased penetration of full-site promotional tools. However, management simultaneously emphasized that maintaining e-commerce market share remains the top priority, implying continued investment and subsidy spending. The company also acknowledged that its massive capital expenditure plans, potentially exceeding $380 billion over three years, may not deliver stable correlations with incremental revenues given the early-stage nature of AI monetization. With GAAP net income already down 53% year over year and the upcoming third-quarter fiscal 2026 report expected to show pre-tax profit declining approximately 44%, the forward outlook remains clouded by spending commitments that may take years to yield meaningful returns.
Valuation and Competitive Landscape
From a valuation standpoint, BABA stock is currently trading at a forward 12-month price/sales ratio of 2.29X compared with the industry’s 1.84X. BABA has a Value Score of F, suggesting the stock is meaningfully overvalued relative to peers. Meanwhile, the competitive landscape is intensifying rapidly. Alphabet GOOGL continues to scale its Google Cloud AI capabilities aggressively, Alphabet’s DeepMind models are advancing at a remarkable pace, and Alphabet’s global infrastructure gives it a durable structural edge. Microsoft MSFT is leveraging its Azure platform alongside deep OpenAI partnerships, Microsoft’s enterprise AI penetration is accelerating across key industries, and Microsoft’s cloud margins remain significantly healthier than Alibaba’s. Amazon AMZN dominates through AWS’ deeply entrenched market position, Amazon’s AI services are expanding into logistics and retail verticals, and Amazon’s consistently superior free cash flow generation dwarfs what Alibaba currently produces. Against these well-capitalized global rivals, Alibaba’s margin-eroding AI bet looks increasingly risky.
BABA’s Valuation
Image Source: Zacks Investment Research
Conclusion: Time to Step Aside
BABA’s 28% rally over six months has been impressive, but the fundamentals tell a cautionary tale. Collapsing earnings, ballooning expenses, regulatory headwinds in China and fierce competition from better-positioned global tech giants all point to significant downside risk. For investors weighing whether to hold tight or let go, the prudent move in 2026 clearly appears to be the latter. The stock’s premium valuation, combined with an uncertain path to AI monetization, makes BABA a name worth avoiding for now. Alibaba currently has a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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