Chinese e-commerce and technology heavyweight Alibaba Group Holding Ltd. (NYSE:BABA) is back in the spotlight after reports that it is preparing to spin off and potentially list its AI chip unit. The move has sparked renewed optimism around Alibaba’s long-term strategy, pushing shares higher and reviving the debate over whether now is the right time to buy the stock.
The chip business in question, T-Head Semiconductor, was founded in 2018 and focuses on designing data center, Internet of Things (IoT), and artificial intelligence chips. While the timing of the IPO remains uncertain, Alibaba reportedly plans to make the unit partially employee-owned before seeking a public listing. Investors reacted positively to the news, sending BABA stock up more than 5% intraday on Jan. 22.
So, does this development meaningfully improve the Alibaba stock outlook?
About Alibaba’s Core Business
Alibaba is headquartered in Hangzhou, China, and operates one of the world’s most expansive digital ecosystems. The company dominates Chinese e-commerce through platforms such as Taobao and Tmall, while also running international marketplaces, logistics networks, digital media businesses, and financial technology services.
Beyond retail, Alibaba has invested heavily in cloud computing and AI infrastructure. Its Cloud Intelligence segment has become a central pillar of the company’s growth strategy, supporting enterprises, developers, and government clients with data, computing power, and AI tools. With a current market capitalization of roughly $423 billion, Alibaba remains one of China’s most influential technology firms.
Alibaba Stock Performance and Valuation
BABA stock has staged a powerful rebound over the past year. Shares are up about 102% over the last 52 weeks and have gained 42% in the past six months, fueled by enthusiasm around AI adoption and renewed confidence following President Xi Jinping’s meeting with Chinese entrepreneurs, including co-founder Jack Ma.
The rally pushed the stock to a 52-week high of $192.67 in October 2025, although it has since pulled back roughly 10%. On valuation, Alibaba trades at a price-to-earnings ratio of about 23 times, modestly above the industry average. That multiple reflects optimism around future growth but also leaves the stock sensitive to earnings disappointments.
Cloud Growth and Earnings Trends
Alibaba’s most recent quarterly results highlighted both promise and pressure. In the quarter ended Sept. 30, 2025, revenue rose 5% year over year to RMB 247.8 billion ($34.8 billion). The standout performer was Cloud Intelligence, where revenue climbed 34% year over year, driven by public cloud demand and surging adoption of AI-related products.
However, profitability lagged. Income from operations fell sharply as Alibaba ramped up spending on technology, user experience improvements, and quick commerce initiatives. Non-GAAP earnings per ADS declined significantly, reinforcing concerns that near-term earnings will remain under pressure.
Wall Street expects this trend to continue in the short run, with EPS projected to decline for the current fiscal year before rebounding strongly in fiscal 2027. That expected recovery underpins much of the bullish case for the stock.
How the AI Chip IPO Could Impact the Alibaba Stock Outlook
The potential IPO of T-Head Semiconductor could be strategically important. Spinning off the chip unit may unlock hidden value, improve transparency, and allow the business to pursue partnerships and funding independently. It could also reduce capital intensity at the parent level over time.
That said, investors should temper expectations. Chip design is capital-heavy and highly competitive, especially amid ongoing U.S.-China technology tensions. While an IPO could be a long-term positive, it is unlikely to immediately transform Alibaba’s earnings profile.
What Analysts Are Saying About BABA Stock
Analyst opinion remains largely favorable. Firms such as Jefferies and Citigroup have reiterated “Buy” ratings, pointing to strong cloud momentum, AI integration across Alibaba’s ecosystem, and long-term earnings leverage. Jefferies’ $225 price target reflects confidence in sustained triple-digit growth in AI-related cloud revenue.
More cautious voices, including Freedom Capital Markets, have flagged rising capital expenditures and competitive pressures in retail as reasons for restraint. Still, the overall consensus rating on Alibaba Group Holding Ltd. (NYSE:BABA) is “Strong Buy,” with the average price target implying double-digit upside from current levels.
Bottom Line
The Alibaba stock outlook hinges on patience. Near-term earnings remain under strain, but cloud growth, AI innovation, and the potential chip IPO strengthen the long-term narrative. For investors willing to accept volatility and geopolitical risk, BABA stock could still offer attractive upside tied to China’s AI-driven digital transformation.
Featured Image: Megapixl @ Syanawut
