Key Points
Few tech giants have faced as sharp a reversal of fortune as Alibaba Group (NYSE: BABA). Once the pride of China’s internet economy and a global e-commerce leader, Alibaba has spent the last four years navigating regulatory crackdowns, intensifying competition, and sluggish consumer demand. At its peak in 2020, shares traded above $300. Today, they trade at less than half that, a reflection of both real business headwinds and diminished investor confidence.
But with its June quarter results for fiscal 2026 (Q1 2026), the company is showing signs of stabilization. While Alibaba is not free of challenges, progress in cloud computing, international commerce, and restructuring efforts suggests the worst may finally be in the rearview mirror.
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A perfect storm of challenges
Alibaba’s decline wasn’t about a single problem — it was a convergence of many.
- Regulatory shocks: China’s government abruptly halted Ant Group’s IPO in 2020 and later hit Alibaba with a record $2.8 billion antitrust fine. Rules around fintech, data, and platform dominance fundamentally changed how Alibaba could operate.
- Domestic slowdown: Weak consumer confidence, high youth unemployment, and uneven post-pandemic recovery weighed on retail spending. For a company whose bread and butter is e-commerce, this was a painful drag.
- Competitive encroachment: Pinduoduo and Douyin (China’s TikTok) steadily chipped away at Alibaba’s once-dominant retail ecosystem. Aggressive discounting and innovative formats pressured margins and loyalty.
- Geopolitical risks: U.S.-China tensions raised the specter of delisting, while export restrictions on advanced chips threatened Alibaba’s artificial intelligence (AI) and cloud ambitions. Foreign investor sentiment soured, compressing valuations.
The result was years of sluggish growth, deteriorating margins, and a stock many feared had become a value trap.
But green shoots are emerging
While most investors would have given up by now, Alibaba’s Q1 2026 results suggest that the company is making a positive comeback.
Let’s start with the most obvious, which is the stabilization of its revenue. In Q1 2026, while revenue was up just 2% year over year, actual growth (after adjusting for business disposals) was closer to 10%. This performance was a result of stable growth in the core-commerce business and the accelerating growth in the cloud computing segment.
The elephant in the room, Alibaba China’s e-commerce business delivered a commendable 10% increase in revenue, thanks to growth in customer management revenue. In particular, initiatives in quick commerce, such as Taobao Instant Delivery, while still unprofitable, have enabled the company to capture greater mind share. There was a 25% year-over-year increase in monthly active consumers on the Taobao app in the first three weeks of August.
While Alibaba needs to stabilize its e-commerce business — given that it’s the bread and butter of the company — the real highlight is the solid expansion of the cloud business. In Q1 2026, cloud revenue surged 26% year over year, powered by soaring demand for AI infrastructure and services. Better still, AI product revenue has now grown at triple-digit rates for eight consecutive quarters. For years, the cloud has been under-delivering. Today, it looks like a legitimate growth engine.
Besides, Alibaba’s restructuring efforts to streamline the business continue. It combined Taobao, Tmall, Ele.me, and Fliggy into one commerce division, aiming to unify customer touchpoints, reduce duplication, and sharpen focus — especially in competitive battlegrounds like instant delivery. It also reduced its reporting segments into four areas: China e-commerce group, international digital commerce group, cloud intelligence group, and all others. These efforts will likely lead to better focus and improved long-term execution.
Overall, Alibaba demonstrated real progress in its turnaround efforts.
The road ahead still has obstacles
Still, investors shouldn’t confuse progress with a complete turnaround. Quick commerce, while strategically important, continues to weigh on profitability. Price wars in food and grocery delivery mean heavy subsidies and thin margins. Domestic consumption remains soft, limiting how fast the retail business can rebound. And geopolitical risk is ever-present: U.S. chip restrictions could slow Alibaba’s AI roadmap, even as it develops its own processors.
Moreover, competition from Pinduoduo and Douyin is not going away. Both platforms have demonstrated a remarkable ability to capture younger consumers, compelling Alibaba to innovate to keep pace continually.
What does it mean for long-term investors?
So, is the worst finally over? The answer is yes, but with caveats.
On the positive side, cloud and AI are becoming genuine growth drivers. Domestic e-commerce is stabilizing after years of attrition. And management is restructuring the business with a clearer focus.
Still, the stock carries risks tied to regulation, geopolitics, and fierce competition. But at today’s valuation, those risks may be more than priced in.
Investors should closely track Alibaba’s performance in the coming quarters, especially on the progress of its e-commerce business and the sustainability of its cloud business’s growth. If Alibaba can sustain its recent performance across both segments, investors will have more conviction in holding on (or buying) the stock.
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Lawrence Nga has positions in Alibaba Group and PDD Holdings. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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