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BABA · Forward model · AI Labs and Applications · Bear case

What has to happen in AI Labs and Applications

Model as of

This page changes AI Labs and Applications inside the complete BABA model. Every other vertical, corporate programme and valuation assumption stays in the selected portfolio case.

BABA forward model
Horizon
Consolidated fair value $49.25 all other verticals held in this portfolio case
Final-quarter revenue $1.06B 2% of company revenue
Explicit segment contribution −$22.16B EBITDA less segment capex, before corporate items

The June quarter is the run-rate, not a trough. China e-commerce revenue keeps falling and customer management revenue with it, on what the release calls weaker transaction activities. Subsidy competition with Meituan and JD holds quick-commerce margins down. AI Labs keeps losing roughly four dollars for every dollar it earns and no date is ever set for that to stop. All others takes a second impairment. Capital expenditure stays at 2.5x group adjusted EBITA anyway, because stopping concedes the market, and the equity has to be raised again. The market never pays more than one times revenue for the operating business.

AI Labs and Applications

Basis quarter$492M
Final quarter$1.06B
Implied CAGR+17%
Final revenue mix2%

The burn, finally given its own reporting line. AI model labs, the Qwen Consumer Business Group and QwenWork were pulled out of All others this quarter. The segment lost RMB13,861 million of adjusted EBITA on RMB3,338 million of revenue - a margin of -415% - against a RMB3,224 million loss a year earlier. The release attributes the widening to increased investment in AI capabilities and higher inference cost related to the Qwen app.

Last four quarters
2026 Q2 $492M Reported
Qwen app (consumer)QwenWork (enterprise agent)AI model labs
Sequential growth +3.8%/qtr decaying toward +5.8% 3.75% a quarter is the 15.8% year-over-year the segment printed on its restated June 2025 comparative.
AI Labs and Applications

Latest: $1.06B (2031Q2E)

Period Value
2026Q2 $492M
2026Q3E $506M
2026Q4E $522M
2027Q1E $539M
2027Q2E $557M
2027Q3E $576M
2027Q4E $597M
2028Q1E $619M
2028Q2E $643M
2028Q3E $668M
2028Q4E $694M
2029Q1E $722M
2029Q2E $752M
2029Q3E $783M
2029Q4E $816M
2030Q1E $851M
2030Q2E $888M
2030Q3E $927M
2030Q4E $968M
2031Q1E $1.01B
2031Q2E $1.06B

Assumptions & reasoning

  • This segment did not exist before the June 2026 recut. Its only comparative anywhere is the restated June 2025 quarter, RMB2,882 million of revenue and a RMB3,224 million adjusted-EBITA loss.
  • The loss, not the revenue, is what this vertical contributes: -RMB13,861 million of quarterly adjusted EBITA against group adjusted EBITA of RMB27,329 million. At 1.2% of group revenue it takes half the group's operating profit.
  • This is the only vertical whose terminal growth is set ABOVE its current rate. That is an assumption about Qwen app monetisation, not a disclosure: the release says 250 million users have had their first AI-driven shopping experience through the app's agentic features, but gives no revenue per user and no monetisation metric of any kind.
  • Neither the release nor either transcript sets a date or a path for narrowing this loss. The glide from -398% to -20% of revenue is entirely judgement, and the segment is still loss-making in the terminal year under it.
  • Qwen weights are open - Qwen3.8-Max at 2.4 trillion parameters - so adopters can run the model without paying Alibaba anything, while inference cost for the consumer app scales with usage before revenue does.
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