Highlights

• Alibaba’s outlook is increasingly supported by accelerating cloud growth, improving margins and stronger AI execution. Qwen3.8-Max strengthens Alibaba’s frontier-model competitiveness, while QwenWork broadens its enterprise AI offering and could support greater workplace adoption, API usage and cloud monetisation.
   
• Apple’s adoption provides further external validation of Qwen’s capabilities. Core commerce also remains resilient, supported by better-than-expected CMR and EBITA, narrowing quick-commerce losses and early signs of consumption stabilisation.
   
• Maintain BUY with a target price of HK$190.00 (US$194.00).

Analysis

• Qwen3.8-Max strengthens Alibaba’s frontier-model positioning and supports broader AI and cloud adoption. Alibaba Group (Alibaba) released
  Qwen3.8-Max with 2.4t total parameters, visual-understanding capabilities and a 1m-token context window, alongside significant improvements in coding and professional productivity tasks. On the third-party Arena leader board, Qwen ranked behind Anthropic’s Claude series and Kimi K3, placing it within the first tier of global foundation models. The model is competitively priced at Rmb12 (US$2.00) per 1m input tokens, Rmb36 (US$6.00) per 1m output tokens and Rmb1.5 (US$0.25) per 1m cached-input tokens, with its output price equivalent to only 24% of Claude Opus 5. Qwen3.8-Max and Qwen3.8-27B are expected to be released on an open-weight basis. A stronger model performance, lower inference costs, and open-weight distribution should strengthen Alibaba Cloud’s model-as-a-service (MaaS) offering and drive incremental application programming interface (API) usage and cloud-computing demand. 
   

• QwenWork strengthens Alibaba’s enterprise AI offering and supports cloud monetisation. The launch of public testing for QwenWork (千问办公), an enterprise-grade agent product, expands Alibaba’s AI capabilities into a broader range of workplace applications. By integrating QoderWork, MuleRun and Wukong, the platform can support document generation, data analytics, audio and video creation, and web application development. Its initial integration with DingTalk provides an established distribution channel and access to enterprise users, while future connectivity with corporate databases and workflows could deepen user engagement, accelerate enterprise adoption and generate incremental AI inference and cloud demand for Alibaba Cloud. 
   

  

   

• Cloud growth accelerates alongside continued margin improvement. Alibaba Cloud’s revenue growth is likely to accelerate to 45% yoy, from 38%
  yoy in the previous quarter, significantly ahead of expectations, while management indicated that growth could continue to accelerate in the coming quarters. Cloud margin is also projected to improve to 11-12%, from 9% last quarter and above the earlier 10-11% expectation, supported by a higher MaaS revenue mix and cost benefits from self-developed T-Head chips. Management reiterated Alibaba Cloud’s long-term margin target of around 20% and noted that most of T-Head’s output is either used internally by Alibaba Cloud or sold externally through the cloud platform, implying limited impact on group revenue after internal eliminations. Although T-Head remains loss-making, the continued improvement in Alibaba Cloud’s margin points to solid underlying profitability momentum.
   
• Apple partnership validates Qwen and strengthens Alibaba's AI monetisation outlook. Apple's selection of Alibaba validates Qwen's model
  capabilities, regulatory compliance and scalability. Integration into Apple's China ecosystem should expand usage across Chinese-language and
  multimodal applications, creating a positive flywheel of user adoption, model improvement and enterprise demand, while driving incremental inference, Alibaba Cloud consumption and brand recognition.
   
• Core operating trends remain positive, with early signs of consumption stabilisation. Our positive view remains unchanged, with customer
  management revenue (CMR) likely to decline 7-8% yoy under the new accounting treatment as merchant subsidies are netted against revenue, while growing 1-2% yoy on a like-for-like basis, slightly above consensus. Domestic e-commerce EBITA is forecast to decline only 3-4% yoy, significantly better than the previous expectation of around 8%, reflecting improving industry discipline. Quick-commerce losses are also projected to narrow to around Rmb10b in the June quarter, better than the previous expectation of Rmb14b, while AIDC EBITA could turn positive. Meanwhile, China online retail goods GMV grew 4% yoy in June vs 3% in May, with a sequential improvement in home appliances and 3C products, indicating that domestic consumption is bottoming and providing a more supportive backdrop for Alibaba’s core commerce business.