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Alibaba Plans Massive Cloud Investment, Wedbush Sees 'Key Turning Point'

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Alibaba Plans Massive Cloud Investment, Wedbush Sees 'Key Turning Point'

Alibaba Group Holding Ltd (NYSE: BABA) announced plans Monday to invest 200 billion yuan ($28 billion) in its cloud computing division over the next three years.

This is a major strategic move by the company, which is poised to benefit from a ramp in demand for various cloud computing solutions from enterprises in China, Asia and across the globe, according to Wedbush.

Global Cloud Spending Accelerates During Pandemic 

While Alibaba's cloud business had delivered strong growth over the past year, it represents less than 10% of overall revenues, analyst Daniel Ives of Wedbush Securities said in a Monday note. He expects the company to double this over the next few years.

The COVID-19 pandemic has accelerated a shift to the cloud globally, with the remote learning and work-from-home business model putting major strains on existing IT infrastructure, the analyst said. 

The pandemic could be "a key turning point" in enterprises deploying cloud-driven environments, Ives said. Earlier projections of workloads in the cloud growing to 55% by 2022 now appear conservative, he said. 

Alibaba's Competitive Position

Although Alibaba has almost a 50% share in the Chinese market, it is facing stiff competition from JD.Com Inc (NASDAQ: JD), Tencent (OTC: TCEHY), Baidu Inc (NASDAQ: BIDU) and other companies, Ives said. 

The company's latest announcement is both an offensive and defensive move, as Amazon.com, Inc. (NASDAQ: AMZN) and Microsoft Corporation (NASDAQ: MSFT) own the cloud market globally, the analyst said. 

BABA Price Action

Alibaba shares were trading 2.6% higher at $214.96 at the time of publication Monday. 

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Latest Ratings for BABA

DateFirmActionFromTo
Oct 2020NeedhamMaintainsBuy
Oct 2020KeyBancMaintainsOverweight
Sep 2020BenchmarkMaintainsBuy

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