Goldman Sachs significantly raises Alibaba's target price, optimistic about the valuation increase in China's data center industry

Alibaba's financial report is explosive, Goldman Sachs significantly raises its target price and expects Alibaba to lead the development of China's data center industry.

On February 21, Goldman Sachs released its latest report, significantly raising Alibaba Group's 12-month target price to $160/156 HKD, an increase of over 36% from the previous $117/114 HKD. Goldman Sachs maintains a "Buy" rating on Alibaba, believing that its core e-commerce business is stable, and the accelerated development of AI and cloud services will lead to an increase in valuation.

In another report, Goldman Sachs pointed out that as one of China's top two hyperscale cloud service providers (the other being ByteDance, in terms of AI capital expenditure), Alibaba's AI and cloud computing strategy has had a positive impact on the entire data center industry.

Alibaba's third-quarter results for the fiscal year 2025 exceeded expectations, especially in terms of AI-related capital expenditures. Specifically:

Alibaba Cloud's revenue growth accelerated to 13% year-on-year, higher than the previous quarter's 7% and last year's 3%.

AI revenue achieved triple-digit year-on-year growth for six consecutive quarters, and public cloud revenue also achieved double-digit year-on-year growth.

Alibaba Cloud's adjusted EBITA profit margin reached 9.9%, higher than the previous quarter's 9.0% and last year's 8.4%.

Capital expenditures reached 31.8 billion RMB (approximately $4.35 billion), a year-on-year increase of about 260% and a quarter-on-quarter increase of 80%, mainly due to increased cloud infrastructure spending.

Alibaba Leads the Development of China's Data Center Industry

Goldman Sachs pointed out that as one of China's largest cloud service providers, Alibaba's AI and cloud computing strategy has had a positive impact on the entire data center industry:

Infrastructure innovation: Launched Panjiu AI servers, CPFS storage, and HPN 7.0 network hardware upgrades to improve AI training stability and model computing efficiency.

Platform optimization: Achieved GPU containerized computing through Alibaba Cloud ACS, with an effective utilization rate of over 90% for AI computing.

Overseas expansion: New data centers launched in Thailand and Mexico, with data centers in Dubai, Malaysia, the Philippines, and South Korea under construction.

Goldman Sachs believes that Alibaba's better-than-expected cloud revenue growth and capital expenditures will have a positive impact on the demand and supply dynamics of China's data center industry, potentially leading to a revaluation of the industry.

Industry Impact: Data Center Operators Expected to Benefit

Goldman Sachs expects Alibaba's strategy to have a positive impact on Chinese data center operators, particularly companies like GDS Holdings and 21Vianet.

According to Goldman Sachs, Alibaba is GDS Holdings' largest customer, accounting for 33.5%/30.1% of GDS's total committed area/net revenue in China for the third quarter of 2024. The acceleration of Alibaba Cloud's revenue growth may indicate:

1. Stronger occupancy demand in unfulfilled orders
2. Data center operators may receive larger data center orders, potentially leading to increased capital expenditures among data center operators

From a valuation perspective, Goldman Sachs believes that improved market sentiment towards the data center industry will lead investors to be more inclined to value these stocks based on "normalized/retracted EBITDA," resulting in a higher enterprise value to EBITDA multiple (EV/EBITDA) for the 12-month forward outlook For example, if we value GDS Holdings Limited China using a "normalized EBITDA" with a 15x EV/EBITDA based on the projections for 2026, the final valuation is 19 times, which means that the value of GDS Holdings Limited China's American Depositary Share (ADS) is $54.7; for Century Internet, if we value it using a "normalized EBITDA" with an 11x EV/EBITDA, the final valuation is 15.8 times, which means that the value of Century Internet's data center business American Depositary Share (ADS) is $17.8, assuming other conditions remain unchanged