AI and instant e-commerce investments are significant and surprising, Alibaba wants to "go all the way"!

Nomura Securities believes that Alibaba is investing heavily at all costs in the two future battlegrounds of instant e-commerce and artificial intelligence to exchange for long-term growth and market dominance.

According to news from the Chasing Wind Trading Desk, on August 30, Nomura Securities' research report pointed out that Alibaba is making substantial, even cost-agnostic investments in instant e-commerce and artificial intelligence. Short-term profits will be pressured as a result, but the potential for long-term growth has been opened up.

Alibaba's capital expenditure this quarter reached 38 billion RMB, a quarter-on-quarter increase of 57% and a year-on-year increase of 2.2 times. In terms of instant e-commerce, Alibaba expects losses for the quarter ending in September to peak at around 22 billion RMB.

The cost of this gamble is a significant erosion of short-term profits. In just one quarter, the newly established China E-commerce Group (CEG) saw its earnings before interest, taxes, depreciation, and amortization (EBITDA) decline by 10 billion RMB.

However, the initial returns are equally astonishing. Instant e-commerce is not only rapidly catching up with competitors but has unexpectedly brought a 25% increase in monthly active buyers to the core e-commerce (Taobao App). Meanwhile, strong demand for AI services has driven Alibaba Cloud's revenue growth far beyond market expectations.

Nomura Securities emphasizes that this battle of "exchanging profits for growth" has already begun, and Alibaba has demonstrated its determination to "go all the way." Investors need to assess the short-term pain against long-term value.

Costly Investments: Huge Losses for Market Share

Nomura Securities points out that Alibaba is aggressively attacking the future high grounds of AI and instant e-commerce through "cost-agnostic" investments, with the scale of investment directly reflected in its financial statements.

According to financial report data, the newly established China E-commerce Group (CEG) saw its adjusted profits decline significantly by 21% year-on-year in the quarter ending June 2025 (the first quarter of fiscal year 2026), reducing by a total of 10 billion RMB.

The core reason for this significant gap is the massive investment of about 11 billion RMB in the instant e-commerce business.

This is not the end. Alibaba's management has clearly stated that it expects losses in the instant e-commerce business to expand to 22 billion RMB. This substantial amount will primarily be used for the expansion of delivery teams, capturing user mindshare, and driving order volume growth.

At the same time, investments in the AI sector are also substantial.

To respond to strong AI demand, Alibaba Cloud's capital expenditure (Capex) this quarter reached 38 billion RMB, a staggering increase of 57% quarter-on-quarter and a year-on-year surge of 2.2 times. This figure clearly indicates Alibaba's firm confidence in the future prospects of AI.

To make way for these two strategic investments, the company has even hinted at possibly slowing down its stock buyback pace (having repurchased 1.4 billion USD in the first half of 2025, with still 19.3 billion USD remaining), prioritizing capital for seizing new growth opportunities.

Surprising E-commerce Fundamentals: Instant E-commerce Benefits Core Business

Nomura Securities believes that despite the massive investments, these investments have already begun to yield surprisingly positive initial returns, especially in driving growth across the entire ecosystem, with effects exceeding market expectations First of all, in the fiercely competitive instant e-commerce sector, Alibaba's pace of catching up is astonishing.

As of August, its average daily order volume has reached 80 million, significantly narrowing the gap with market leader Meituan (estimated to exceed 90 million orders) in the past three months.

Notably, orders related to low-price traffic generation account for less than 30%, indicating that the health of its order structure is improving.

The more critical surprise lies in the strong feedback effect of instant e-commerce on core e-commerce.

According to Alibaba's disclosure, thanks to the boost from instant e-commerce, its flagship app Taobao achieved a 25% year-on-year growth in monthly active buyers in the first three weeks of August.

This increase in user activity directly translates into strong performance in the core e-commerce business. In this quarter, Alibaba's Customer Management Revenue (CMR) grew by 10% year-on-year, basically in line with market expectations.

Even more unexpectedly for the market, management expressed confidence in CMR growth for the next few quarters, believing it will maintain a similar growth rate.

This positive guidance is undoubtedly a significant boon, as prior to this, the market generally expected a slowdown in CMR growth in the next two quarters due to the high base effect.

Alibaba is determined to "go all the way": Long-termism behind the "burning money"

Research reports point out that Alibaba's current strategic choice is essentially a long-termism gamble focused on the future.

Alibaba's management clearly outlined the future vision of these two new engines during the conference call, demonstrating their determination to persevere.

For instant e-commerce, Alibaba has set an extremely ambitious goal: by 2028, this business will directly contribute approximately 1 trillion RMB in GMV to the company, equivalent to creating an additional market of about 10% on top of its existing e-commerce scale.

To achieve this goal, the company is not blindly "burning money." Alibaba expects that by optimizing operational efficiency and economies of scale, the loss per order will narrow by 50% in the next two months, indicating that it is simultaneously building a sustainable business model.

For AI and cloud business, management also expressed optimistic expectations, believing that cloud revenue will continue to accelerate in the future. The capital expenditure of up to 38 billion RMB in a single quarter is the strongest proof of this confidence.

In summary, Alibaba is using a "bleeding" profit statement to declare its determination for strategic transformation to the market.

By making substantial investments in instant e-commerce and AI, the company is not only catching up with competitors but also unexpectedly activating the growth potential of its core business.

Nomura Securities believes that in the short term, profit pressure and a slowdown in buybacks may lead to stock price fluctuations; however, in the long run, if these two new engines can successfully ignite, Alibaba's growth ceiling will be completely opened. Nomura Securities maintains its "Buy" rating and a target price of $152