BABA:FY CAPEX Outlook Uncertain, But FY2026 20% YoY Cloud Growth Achievable

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Check our previous Alibaba Cloud preview.

Why Did Revenue Miss Expectations?

Alibaba Cloud reported 18% YoY revenue growth this quarter, falling at the low end of consensus (US/Europe investors expected ~18%, while China local investors were closer to 23%). Our own estimate of ~20% proved to be optimistic. The miss can be attributed to both demand timing and supply constraints:

• Demand side: The ramp in external demand wasn't as fast as anticipated. Although customer AI spending—particularly from internet companies—showed strong momentum in our checks, there's a lag from intent → pilot → scaled deployment. For example, DeepSeek didn’t gain viral traction until around Chinese New Year (February), meaning any incremental demand materialized late in the quarter and had limited impact on Q1 revenue.

• Supply side: Alibaba responded to surging demand by placing additional orders for Nvidia H20 GPUs. However, major internet platforms reportedly didn’t begin receiving shipments until late March. Even after delivery, standard deployment timelines (e.g., 3 months internationally) mean most of this capacity won’t meaningfully contribute until Q2 or beyond.

How Should We Think About Alibaba cloud's FY CAPEX?