China’s Alibaba to Invest $28 Billion in Cloud Computing

Alibaba Group Holding Ltd. (BABA) said it will invest 200 billion yuan ($28 billion) to develop its cloud infrastructure over the coming three years.

The investment is made in response to a surge in cloud use and the need for reliable computing technologies due to coronavirus-related lockdown orders forcing many employees to work from home.

The Chinese e-commerce giant expects to spend the funds on semiconductor, servers, chips and operating system development as well as on building out its data centre infrastructure.

“The Covid-19 pandemic has posed additional stress on the overall economy across sectors, but it also steers us to put more focus on the digital economy,” Jeff Zhang, President of Alibaba Cloud Intelligence, said in a statement.

Alibaba is scheduled to report its next earnings on May 20.

Last week, five-star analyst Colin Sebastian at Robert W. Baird reiterated Alibaba’s Buy rating and a $230 price target but slightly reduced estimates ahead of F4Q results. Sebastian points to more positive e-commerce trends through March after a very challenging February.

“Our revised estimates are still above Street consensus, and reflect a fairly optimistic recovering scenario into the next fiscal year. We note that Tmall, Cloud, and Innovation (e.g., DingTalk) segments should perform relatively better than Taobao, local and export segments,” according to Sebastian.

Turning to other Wall Street analysts, the bulls have it. All of the 19 analysts covering the company in the past three months say Buy the stock adding up to Strong Buy consensus rating. The $257.72 average price target implies 23% upside potential in the shares in the coming 12 months. (See Alibaba stock analysis on TipRanks).

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