Key Takeaways
- Alibaba emerged as China’s leading AI deployment choice in Morgan Stanley’s latest CIO survey, capturing 41% preference versus 32% previously
- The company’s Qwen platform dominates across infrastructure, models, and applications, while ByteDance’s Doubao trails at 27%
- DeepSeek saw a significant decline in expected market penetration, falling from 33% to just 18% among surveyed executives
- Morgan Stanley maintains its “Top Pick” designation with an Overweight stance and $180 valuation target
- China’s IT spending growth projections plummeted to a historic low of 4.8%, declining from 12.6% in the previous assessment
Alibaba (BABA) is currently hovering near $131.50, experiencing modest daily losses, yet the company’s strategic positioning improved substantially following Morgan Stanley’s latest assessment identifying it as China’s premier AI player.
Alibaba Group Holding Limited, BABA
Morgan Stanley’s AlphaWise 1H26 China CIO Survey, which gathered insights from 60 chief information officers between March and April, revealed Alibaba establishing a commanding lead. The proportion of CIOs selecting Alibaba for artificial intelligence implementation jumped to 41%, representing a significant increase from the 32% recorded previously.
Thirty percent of surveyed executives anticipate Alibaba will command the largest portion of fresh AI expenditures throughout 2026, securing the top position. ByteDance’s Doubao platform ranked second with 27% support.
DeepSeek, which demonstrated robust performance in the earlier assessment, experienced a dramatic contraction in projected market penetration—plunging from 33% to 18%. Morgan Stanley researchers explained this shift by pointing to Qwen’s regular platform enhancements and ByteDance’s intensive promotional efforts, which stand in contrast to DeepSeek’s more reserved, research-centered strategy.
Morgan Stanley’s Gary Yu maintained his Overweight recommendation on BABA while preserving the $180 valuation target. Wall Street sentiment aligns strongly—the equity holds a Strong Buy rating based on 15 Buy recommendations and two Hold ratings issued during the last three months. The consensus price objective stands at $185.41, suggesting approximately 45.6% appreciation potential from present levels.
Cloud Infrastructure Powering Growth Trajectory
Morgan Stanley projects Alibaba’s cloud division will expand beyond 40% on a year-over-year basis, fueled by escalating AI requirements and expanded platform adoption. Recent pricing adjustments across cloud offerings—encompassing a 5% to 34% markup on T-Head AI processors and roughly 30% elevation in cloud storage fees—have not dampened customer demand.
AI expenditure as a percentage of total IT budgets is forecast to approach doubling, rising from 6.1% in 2025 to 12.1% in 2026. This represents a substantial transformation, and Alibaba seems strategically positioned to capitalize on this transition.
However, challenges exist. Elevated investment in AI offerings like Qwen has increased operational expenses, creating near-term earnings headwinds. Losses within the company’s quick commerce division are anticipated to contract, potentially mitigating some of this financial pressure going forward.
Challenging Environment for China Technology Spending
The survey revealed concerning trends for China’s wider technology sector. CIOs reduced their 2026 IT budget expansion forecast to 4.8%—representing the lowest projection since Morgan Stanley initiated this survey in 2020 and marking a steep decline from the previous 12.6% estimate.
Geopolitical uncertainties, deflationary pressures, and rapidly evolving AI capabilities are collectively driving CIO conservatism. Nearly half of respondents—47%—indicated that most AI initiative launches have been postponed until 2027.
An emerging pattern deserves attention: AI is increasingly cannibalizing conventional software allocations. The proportion of AI funding sourced from existing software budgets climbed to 22%, up from 10% in the preceding survey. Software’s overall contribution to AI spending decreased from 46–47% to 40%, while hardware’s portion expanded.
Regarding public cloud infrastructure, adoption is projected to accelerate during the upcoming three years, with Alibaba maintaining its dominant position and both ByteDance and Huawei experiencing momentum gains.
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