Alibaba (BABA) PT Lowered to $165 at Bernstein SocGen Group

Bernstein SocGen Group analyst Robin Zhu lowered the price target on Alibaba (NYSE: BABA) to $165.00 (from $180.00) while maintaining a Outperform rating.

The analyst comments: “Alibaba’s shares fell sharply in response to the company’s $10.2bn equity raise a couple weeks ago, and have traded indifferently since. It’s not hard to sympathise with the resulting investor grumbling. Several investors we spoke with argued that the optics of management talking up ROI on capex, news of a deal driving a Friday ADR decline, followed by deal announcement on the weekend… when Alibaba has $30.7bn of net cash… diluted the credibility of management’s ROI claims.

Look beyond the sentiment cross-winds though, our bottom-up analysis mostly supports management’s claims on payback on capex. Our bottom-up builds of Alibaba’s datacentre-level economics triangulate feedback from Alibaba, the AI labs we cover, as well as industry contacts in both the AI and semis supply chains. The datacentre model we built around the existing Zhenwu 810E chip looks consistent with a three year payback on capex, while channel feedback on the new M890 chip (commercial deployment started in August) validates a 2.5 year payback period. Online quotes for server rental prices have continued to point higher in recent months, and our discussions with key customers point to expectations of continued market tightness.”

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