Alibaba Just Launched New AI Models for Video Games. Does That Make BABA Stock a Buy?

E-commerce giant Alibaba Group Holding Limited (BABA) has expanded beyond online retail to become a major player in artificial intelligence (AI), data infrastructure, and digital innovation. Essentially, the company is spending big to be a frontrunner in the AI race. In that effort, it launched a new AI model for developing video games.

The “Happy Oyster” is a “world model” that can generate real-world 3D simulation videos. This also puts Alibaba in direct competition with gaming giant Tencent Holdings Limited (TCEHY). Alibaba explained that, unlike conventional AI video tools that require a prompt, then render, and finally generate a clip, Happy Oyster continuously listens and responds, with the scene adapting in real time and evolving as it goes.

This model came out of the “Alibaba Token Hub,” which is a new unit consolidating its AI research (including the Qwen family of large language models), consumer-facing apps, and related AI products under the leadership of CEO Eddie Wu.

Does this new model launch make Alibaba’s stock a “Buy” now?

How Is Alibaba Faring?

Leading Chinese technology company Alibaba Group operates one of the world’s largest e-commerce platforms. The company’s platform connects buyers, sellers, businesses, and service providers through a wide range of digital platforms. Based in Causeway Bay, Hong Kong, it has a massive market capitalization of $330.87 billion.

Alibaba’s stock has gained 29.52% over the past 52 weeks, but this year, it has dropped 3.8%. Investors seem worried about the company’s short-term profits, even though it continues to invest in AI and cloud and stays ahead of the competition in the Chinese e-commerce space. Alibaba’s shares had reached a 52-week high of $192.67 in October 2025, but are down 26.8% from that level.

Its 14-day RSI of 63.73 shows that the stock, despite the recent selloff, is closer to the overbought territory than the oversold territory. On a forward-adjusted basis, Alibaba’s price-to-earnings ratio of 24.87 times is higher than the industry average of 17.21 times.

Alibaba Reported Revenue Growth but Profit Slump on AI and Quick‑Commerce Spending

For the December quarter, Alibaba’s revenue increased modestly by 2% year-over-year (YOY) to RMB 284.84 billion ($41.76 billion at current exchange rates). However, this missed the RMB 290.70 billion ($42.62 billion) that Street analysts had expected (according to data compiled by the London Stock Exchange Group).

The company recognized improving unit economics in its quick commerce business and an increase in average order value month-over-month during the quarter. The monthly active customer count on its Taobao app grew by double digits, driven by “growing mindshare” and the rising scale of its quick commerce unit.

However, the biggest bright spot was Alibaba’s AI and cloud business, the latter of which continues to deliver accelerating growth, while its AI-related products recorded a tenth consecutive quarter of triple-digit revenue growth.

On the other hand, costs have weighed on Alibaba’s profitability. Due to expenses on quick commerce, user experiences and technology, the company’s income from operations declined by 74% YOY to RMB 10.65 billion ($1.56 billion), while its adjusted EBITA decreased 57% from the prior-year period to RMB 23.40 billion ($3.43 billion).

For the fiscal year ended in March, Wall Street analysts expect the company’s EPS to be $4.39, indicating a 46.9% YOY decrease, followed by a 46.5% growth to $6.43 in the ongoing fiscal year.

What Do Analysts Think About Alibaba’s Stock?

This month, analysts at Barclays maintained a bullish “Overweight” rating on Alibaba’s stock, but lowered the price target from $190 to $186. However, this target cut was not based on any impending concern; it was a disciplined reassessment. Barclays analysts still believe that Alibaba’s accelerated investments are necessary to be dominant in the AI space.

After Alibaba’s Q3 results missed expectations, analysts at Susquehanna maintained a “Positive” rating on the stock, but lowered the price target from $190 to $170. Susquehanna analysts see profitability getting pressured by its rising investments, especially in AI. Yet, they also consider Alibaba to have a solid position in the Chinese e-commerce, cloud, and AI markets, which underscores its long-term growth.

Alibaba is gaining praise on Wall Street, with analysts awarding it a consensus “Strong Buy” rating overall. Of the 25 analysts rating the stock, 19 have given it a “Strong Buy” rating, one a “Moderate Buy,” and five a “Hold.” The consensus price target of $182.33 represents a 29.3% upside from current levels. Moreover, the Street-high price target of $206.10 implies a 46.16% upside.

Key Takeaways

Alibaba’s AI + Cloud spending, although creating short-term margin pressures, might be a key growth driver over the longer term. The company has pledged billions of dollars in investment as it tries to transition from a largely internet retail giant to an AI leader (as has been happening for big tech names). It has an ambitious target to quintuple annual cloud and AI revenue to $100 billion in five years, while it has reportedly begun recouping AI investments in its e-commerce business. Therefore, it might be wise to consider Alibaba as a “Buy” now.

On the date of publication, Anushka Dutta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com