Alibaba (NYSE:BABA) has strengthened its position as one of China’s most compelling artificial intelligence investment opportunities. In 2025, the company announced it would invest about $53 billion over three years to strengthen its AI and cloud infrastructure. More recently, it has indicated it plans to exceed the original investment as demand for AI computing continues to grow.
Apple Partnership Could Be a Major Catalyst
The investment drive underscores Alibaba’s ambition to become China’s leading AI infrastructure provider. A major catalyst arrived on July 15, when Apple secured regulatory approval to launch Apple Intelligence in China. Alibaba’s Qwen large language model will power many Apple Intelligence capabilities in the country, including text generation, image understanding, and conversational AI. The partnership represents one of the strongest endorsements yet of Alibaba’s AI technology.
Apple’s strategic partnership is expected to enhance Alibaba’s reputation as China’s leading enterprise AI provider. It is also poised to position Alibaba at the center of Apple’s AI rollout in one of the world’s largest smartphone markets. In Mainland China, there are between 260 and 300 million active iOS devices that Alibaba can tap into with its AI Qwen Language.
The strategic partnership is also poised to accelerate the adoption of Alibaba Cloud AI services and enable it to generate additional AI-related revenue opportunities. Management expects AI products to contribute more than half of cloud revenue as commercialization expands.
AI Is Already Driving Financial Growth
Alibaba’s fiscal fourth-quarter 2026 results already demonstrate the momentum in its AI business. While total revenue was up 3% in the fourth quarter of fiscal 2026, the increase was driven by accelerated performance in Cloud Intelligence Group. Cloud Intelligence revenue climbed 38%, with AI-related products accounting for 30% of external cloud revenue.
Alibaba has sought to strengthen its competitive position as enterprise AI adoption expands by pushing its self-developed AI chips into mass production. It has also expanded video-generation and increased spending on AI infrastructure despite pressure on near-term free cash flow.
Strong Cash Flow Supports Massive AI Investment
One of Alibaba’s biggest competitive advantages is its financial strength. The company generates approximately $11.1 billion in annual free cash flow, primarily from its e-commerce and cloud businesses. This enables Alibaba to finance its AI expansion without significantly weakening its balance sheet or relying heavily on external financing.
Valuation Still Looks Attractive
In addition, Alibaba looks inexpensive while trading at 14-18x forward earnings, well below large AI-focused technology companies . It also boasts a price-to-sales multiple of around 2x for a company with leading positions in China’s cloud computing, logistics, and AI. In contrast, Amazon, an e-commerce and cloud computing powerhouse spearheading AI innovation and integration, trades at a forward price-to-earnings multiple of 28 and a price-to-sales multiple of 3.
Risks Remain
Nevertheless, Alibaba is not without risks as China’s economic recovery remains uneven and could weigh on consumer spending. Therefore, the company could struggle to generate substantial returns from its AI investments. The company also faces stiff competition from Chinese tech giants, including Tencent, Baidu, DeepSeek, and Huawei, which are also developing AI models. Given that regulatory policies in China could change, its strategic partnership with Apple on AI could be at risk.
Hedge Fund Sentiment Remains Substantial Despite Caution
Institutional ownership remains supportive. According to Insider Monkey’s Q1 2026 database, 102 hedge funds held positions in Alibaba, down modestly from 115 funds in the previous quarter. While Fisher Asset Management and Appaloosa Management lowered their stakes by 5% and 33% stake in the first quarter, they remained the biggest hedge fund holders with stakes worth more than $1 billion combined. Citadel Investment also increased its stakes in Alibaba by 532% to $180.15 million.
JPMorgan and Primecap Management are the biggest institutional holders with stakes worth $2.5 billion and $2.3 billion, respectively. Meanwhile, short interest remains relatively low at approximately 42.4 million shares, representing less than 2% of the public float, suggesting limited bearish positioning despite recent market volatility. The relatively low short interest and solid hedge fund and institutional holding underscore continue to support Alibaba’s long-term investment case.
Bottom line
Alibaba is arguably a strong Chinese AI stock for long-term investors because it combines AI infrastructure, cloud leadership, strong cash flow, and now a strategic partnership with Apple that enhances its credibility in generative AI. It offers one of the strongest risk-reward profiles among Chinese AI companies, combining accelerating AI growth with a valuation that remains well below many global technology peers.
BABA holds both potential and risk as an investment, but our conviction lies in the belief that some other AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is much cheaper than BABA and that has 10,000% upside potential, check out our report about the cheapest AI stock.
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