Alibaba Group BABA is parting ways with its gaming business as it sharpens its bet on artificial intelligence (AI). Asian private equity firm Trustar Capital has reached an agreement to acquire Lingxi Games, the studio behind Three Kingdoms: Strategy Edition, in a deal that could value the unit at more than $1.5 billion, according to an internal memo reviewed by Bloomberg News.
The divestiture is the latest step in a broader reorganization under CEO Eddie Wu, who has been shedding non-core assets while funneling capital toward AI infrastructure and cloud computing, with the company targeting $100 billion in AI revenues over five years.
BABA shares have plunged 15.5% year to date, underperforming the Zacks Internet – Commerce industry’s 6.9% growth and the Zacks Retail-Wholesale sector’s 4.7% rise. This decline has occurred alongside genuine strategic progress rather than deteriorating fundamentals.
Against this backdrop, and with shares under pressure, investors are left weighing whether to hold Alibaba stock or wait for a better entry point.
BABA’s YTD Price Performance
Image Source: Zacks Investment Research
AI and Cloud Momentum Building
Alibaba’s fiscal 2026 fourth-quarter results underscored the scale of this pivot. Group revenues rose 11% year over year on a like-for-like basis, while Cloud Intelligence Group’s external revenue growth accelerated to 40%, with AI-related product revenues posting triple-digit growth for an 11th consecutive quarter.
Management guided that AI-related product revenues are expected to exceed 50% of the cloud unit’s external revenues within a year, and that model and application services annualized recurring revenues are projected to surpass RMB10 billion in the June quarter and RMB30 billion by year-end. The company closed fiscal 2026 with roughly $38 billion in net cash and approved an annual dividend of $1.05 per ADS, signaling balance-sheet capacity to keep funding AI buildout without straining shareholder returns.
The Zacks Consensus Estimate for fiscal 2027 earnings is pegged at $6.87 per share, down 0.1% over the past 30 days. The figure indicates a 76.61% jump year-over-year.
In August 2026, Alibaba released Qwen3.8-Max, its largest model yet, built on 2.4 trillion parameters, and its Qwen family of models has now surpassed three billion downloads with hundreds of open-sourced variants spawning a large derivative ecosystem, reinforcing Alibaba’s push to make Qwen core infrastructure for enterprise and developer partners. The Lingxi sale fits this pattern, freeing management bandwidth and capital from a mature, non-strategic gaming asset toward the AI and cloud roadmap.
Alibaba Group Holding Limited Price and Consensus
Alibaba Group Holding Limited price-consensus-chart | Alibaba Group Holding Limited Quote
Commerce and Consumption Still Contributing
Away from AI, Alibaba’s core commerce engine has continued to hold its own. China e-commerce customer management revenues grew 8% year over year on a like-for-like basis, and the quick-commerce business reported meaningful unit-economics improvement while defending market share, evidence that instant-delivery losses are moderating even as competitive intensity persists. Together with cloud, this gives Alibaba two funded growth engines rather than a single AI narrative carrying the story.
Valuation and Competitive Landscape
BABA has a Value Score of C, which suggests stretched valuation. BABA stock is currently trading at a trailing 12-month Price/Earnings of 39.18X compared with the sector’s 29.47X.
BABA’s Valuation Appears Stretched
Image Source: Zacks Investment Research
Alibaba’s cloud and AI ambitions put it against Microsoft MSFT, Amazon AMZN and Alphabet GOOGL, all of which dwarf Alibaba Cloud in scale. Microsoft’s Azure and Amazon’s AWS lead global infrastructure spend, while Alphabet’s Google Cloud and DeepMind push aggressively into enterprise AI. Microsoft, Amazon and Alphabet each command deeper AI research budgets and broader global cloud footprints than Alibaba, keeping competitive pressure elevated even as Alibaba narrows the model-performance gap domestically.
Conclusion
Given accelerating cloud and AI-related revenue growth, explicit management guidance pointing to AI becoming the majority of cloud revenues, a strengthening balance sheet, and portfolio simplification through moves like the Lingxi sale, the pullback looks more like a valuation reset than a fundamental red flag, arguing for holding existing positions or waiting for further weakness to add exposure rather than chasing the stock or exiting entirely. Investors already positioned may find it reasonable to stay put and let the AI monetization thesis play out over coming quarters, while prospective buyers may prefer patience given the stock’s still-premium multiple relative to its earnings trajectory. Alibaba currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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