Alibaba (BABA) Stock: Jefferies & Morgan Stanley Slash Price Targets – Here’s the Real Reason

Wall Street heavyweights just took a cleaver to Alibaba's valuation.

Jefferies and Morgan Stanley—two firms that once championed the Chinese e-commerce giant—have officially downgraded their price targets. The numbers don't lie, and the sentiment shift is palpable. This isn't a minor adjustment; it's a fundamental reassessment of growth trajectories in a tightening regulatory climate.

The Regulatory Overhang

Forget vague 'macro concerns.' Analysts are pinpointing persistent regulatory scrutiny as the core drag. Every new draft rule from Beijing injects fresh uncertainty, making future cash flow projections a guessing game. It's the classic finance dilemma: how do you value a company when the rulebook gets rewritten quarterly?

Competition Bites Harder

Pinduoduo and ByteDance aren't just nibbling at market share anymore—they're feasting. Alibaba's core commerce dominance is under siege from more agile, algorithm-driven rivals. The growth story that fueled its premium valuation is facing a brutal reality check.

The Cloud Question Mark

Once the undisputed crown jewel and growth engine, Alibaba Cloud now faces its own headwinds. Slowing enterprise spending and increased domestic competition are capping its upside potential, removing a key pillar from the bull thesis.

So, where does this leave investors? Holding BABA now requires a stomach for volatility and a belief that the company can innovate its way out of a regulatory straitjacket. It's a bet on management's agility in an environment where the goalposts keep moving—a favorite pastime of regulators everywhere. After all, what's finance without a little manufactured drama?

TLDR

• Jefferies cut Alibaba’s price target to $225 from $231 but kept its Buy rating, calling it their top pick for 2026 based on AI and cloud opportunities
• Morgan Stanley also lowered its target to $180 from $200, citing weakness in Alibaba’s core e-commerce business due to poor consumer spending in China
• Alibaba’s cloud business continues to show strength with 34% year-over-year growth, driven by solid demand for AI services
• The stock dropped 2.5% in premarket trading Friday despite gaining 5.3% the previous day and rallying 78% over the past year
• China is reportedly preparing to allow sales of Nvidia’s H200 processor, which could benefit Alibaba as a major buyer of Nvidia equipment

Jefferies trimmed its price target on Alibaba to $225 from $231 while keeping a Buy rating on the shares. The firm still sees 53% upside from the current price of $146.75.

Alibaba Group Holding Limited, BABA

Despite the cut, Jefferies named Alibaba its top pick for 2026. The firm pointed to opportunities in AI and cloud computing, along with Alibaba’s one-stop shopping platform.

Morgan Stanley took a more cautious stance. The bank dropped its target to $180 from $200, though it maintained a Buy rating.

The difference comes down to e-commerce. Morgan Stanley warned that Alibaba’s Core online shopping business has started to decline.

Weak consumer spending in China is hurting the segment. Analysts said the pressure could last through the first half of fiscal 2027 due to tough year-over-year comparisons.

The bank expects Alibaba’s overall profitability to weaken in the NEAR to medium term. This stands in contrast to the strength coming from other parts of the business.

Cloud Business Powers Forward

Alibaba’s cloud division posted 34% growth year-over-year in the latest quarter. Jefferies said the acceleration continues, powered by strong demand for AI services.

The firm expects Alibaba made solid progress in Quick Commerce across different metrics during the December quarter. Revenue growth hit 5.21% for the period.

Alibaba reported quarterly results that beat expectations last quarter. The cloud segment drove much of the outperformance.

The company’s CORE China e-commerce business did exceed revenue forecasts for the fiscal second quarter. But Morgan Stanley sees deterioration setting in now.

Investment in AI Continues

Jefferies anticipates continued spending in Alibaba’s “All Others” segment. This includes various artificial intelligence initiatives the company is pursuing.

The firm acknowledged a base effect from last year. It also noted recent industry trends affecting expectations for Customer Management Revenue.

Benchmark maintained a Buy rating on the stock. The firm emphasized strong performance in the cloud segment and Customer Management Revenue, which grew 10% year-over-year.

Bernstein cut its price target to $190 from $200 but kept an Outperform rating. The firm acknowledged Alibaba’s focus on AI initiatives.

The stock fell 2.5% in premarket trading Friday after gaining 5.3% Thursday. Shares rallied 78% over the past year as Chinese tech stocks gained momentum.

China is reportedly preparing to allow sales of Nvidia’s H200 processor in the country. Alibaba, a top cloud computing provider, is a major buyer of Nvidia equipment.