Key Takeaways
- Alibaba shares jumped 6% after Apple picked Qwen for its December AI launch in China, while JD.com and PDD Holdings rose on Chinese market support.
- The deal gets Qwen in front of Chinese iPhone users for next to nothing.
- Alibaba still has to show its AI spending can pay off, after a RMB 44.7 billion free cash flow outflow in the June quarter.
Alibaba (BABA) is up 6% today after Apple (AAPL) said Saturday that Apple Intelligence will launch in China in December, built on Alibaba’s Qwen model.
Some of the jump is policy: JD.com (JD) and PDD Holdings (PDD) rose too, on reports Chinese regulators met with banks and brokerages to support the market.
Cheap reach for Qwen
The deal helps with the bill: Alibaba’s AI Labs and Applications segment lost RMB 13.9 billion (adjusted EBITA) in the June quarter, partly from marketing the Qwen app. A Qwen button inside Siri wins users far more cheaply.
Analysts expect normalized EPS to climb from RMB 26.80 per ADS in fiscal 2026 (years to March) back to about fiscal 2024’s level by fiscal 2028:
Apple’s China sales didn’t wait for AI
For Apple, the launch closes a feature gap with Huawei. Its Greater China sales rose 30% to $64.8 billion in the nine months to June 27 without Apple Intelligence. Apple, down 1%, reports after today’s close, and I’ll be listening for its China outlook.
Beijing deserves some credit
JD.com and PDD get nothing from Apple’s deal, so their gains are all policy. They traded at 7.1x and 6.9x forward earnings at the last close, but neither is growing much: JD’s revenue fell 2.9% in the June quarter, and PDD’s online marketing revenue grew 3%. I’d want to see sales pick up in their November reports before buying the rally.
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The cash has to show up
Alibaba traded at 12x forward earnings at the last close, a touch under its five-year average of 13x and about half its January peak:
At today’s price, it’s right around that average. That’s a full price for a company with free cash flow negative in five of the last six quarters, including a RMB 44.7 billion outflow in the June quarter:
I think today’s jump is deserved, but the stock needs its late-November report to show the AI Labs loss shrinking. Of course, the new Siri isn’t in the first wave, so we won’t know for a while how many iPhone users reach for Qwen.
So what is Alibaba stock actually worth?
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