Morgan Stanley: Adjusts BABA-W (09988) target price to 228.2 Hong Kong dollars, indicating that the market's assumption of Alibaba Cloud's contribution is overly conservative.

Morgan Stanley released a research report stating that it is expected that BABA-W (09988) will continue to accelerate growth in cloud business in the current fiscal year, providing more diversified monetization opportunities for potential expansion of long-term profit margins. Rapid e-commerce summer activities may result in larger losses, but user traffic and transaction volume trends remain stable. The firm reiterated its outperform rating on Alibaba. Based on the company being the best comprehensive technology giant from infrastructure to application layer agent, the target price was lowered from HK$229.1 to HK$228.2. The firm lowered Alibaba's adjusted EBITA forecast for the current and next fiscal year by 24% and 10%, reflecting the company's spending on rapid e-commerce and artificial intelligence training and inference. However, the firm pointed out that as Chinese companies' adoption of artificial intelligence increases, cloud demand will be boosted, bringing a 30% to 35% compound annual growth rate in revenue to Alibaba Cloud in the next few years. Morgan Stanley also believes that the market's current assumption that Alibaba Cloud contributes only about 15% to 20% of Alibaba's valuation is too conservative, compared to the widely believed value of AWS contributing over 50% to Amazon's stock price, showing that there is further room to narrow the valuation gap with American peers.