Alibaba's recent launch of the Zhenwu M890 AI chip has ignited investor enthusiasm, potentially positioning the company's stock for a substantial rebound. Introduced on May 19, the M890 outperforms its predecessor, offering threefold processing power along with impressive specifications like 144GB of GPU memory and rapid chip-to-chip communication designed for demanding AI workloads. This development comes at a critical time for Alibaba, as Wall Street analysts respond positively. Forty-one professionals from S&P Global have designated the stock as a "Strong Buy," projecting an average price target of $190.69, which suggests a potential 40% upside from current levels.
The immediate impact on Alibaba's stock was evident on launch day, with shares closing up around 1.8% at $135.64. This follows a previous Zhenwu announcement that saw shares soar nearly 8% in a single day, highlighting the market's keen interest in Alibaba's AI advancements. However, the significance of the M890 extends beyond its specifications; it underscores Alibaba's strategy in the AI sector. The company is consolidating control over its AI ecosystem, integrating chip production through its T-Head division, cloud services via Alibaba Cloud, and developing large language models through its Qwen initiative.
Morgan Stanley has expressed an "Overweight" stance on Alibaba, noting that the introduction of in-house chips enhances the company's positioning within AI technology. Similarly, Bank of America has reiterated a Buy rating, setting a target of $180 for the stock. The M890's launch is seen not just as a hardware upgrade but as a key indicator of Alibaba's credibility in the competitive AI market.
The timing of the M890 release is fortuitous, coinciding with a notable increase in Alibaba’s AI-driven revenues. For example, the Cloud Intelligence Group reported a remarkable 38% year-over-year revenue increase to $6.1 billion in the March quarter. External cloud revenue growth accelerated to 40%, with AI-related products contributing 30% of this revenue and achieving triple-digit growth for the 11th consecutive quarter. CEO Eddie Wu has noted that Alibaba's AI efforts have "moved beyond the initial investment phase" and are now transitioning toward large-scale commercialization.
Currently, the company has delivered over 560,000 units of the Zhenwu chip, and its Qwen app has attracted 300 million monthly users. This suggests that the M890 is a significant step in a well-defined commercial AI trajectory rather than a speculative venture.
Despite the optimism surrounding the M890, challenges persist. Alibaba reported an operating loss of $125 million in the March quarter, a stark contrast to the previous year's profits. Rising capital expenditures, now at 26.89 billion yuan, have pressured profitability due to increased investments in AI infrastructure and quick commerce initiatives. Analysts warn that profit growth may face challenges through 2026, with a more substantial recovery expected in 2027, contingent on improved cloud monetization and operational efficiencies.
While Alibaba's Zhenwu M890 AI chip launch has invigorated investor sentiment and could lead to significant stock appreciation, the broader economic realities and operational costs present a complex outlook for the company’s immediate financial health.
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