A 2026 Bet on Alibaba Stock Is a Bet on AI

Follow the world of artificial intelligence (AI) long enough, and an investor is bound to hear the phrase "AI arms race." Yes, that term refers to the competition between hyperscalers to spend on and wring profits from AI, but there are also geopolitical implications.

The global competition for AI supremacy is in many ways a two-horse race between the U.S. and China. In the U.S., AI investment is expected to approach $471 billion this year, while comparable expenditures in China are forecast to exceed $119 billion.

Image source: Getty Images.

Obviously, that's a big gap, but AI is another extension of the U.S./China rivalry, and one that the government in Beijing takes seriously. That's one factor that could bode well for shares of Alibaba (NYSE: BABA) in 2026.

As things stand today, the company's evolving AI business goes a long way toward explaining why the stock is up nearly 84% year to date while the MSCI China Index is higher by "just" 30.5%. That performance chasm suggests that Alibaba will need to deliver the AI goods in 2026 to satisfy investor expectations.

Alibaba can extend its winning AI ways

Spending isn't the entire name of the AI game. Spending effectively and delivering benefits to shareholders should be corporations' priorities, but many in the tech sector aren't accomplishing those objectives yet. Alibaba is, as highlighted by a compelling AI intersection with its cloud computing unit.

In the third quarter, Alibaba's Cloud Intelligence Group notched 34% sales growth, helped by its ninth straight quarter of triple-digit year-over-year growth in AI-related product revenues. CEO Eddie Wu explicitly said those increases were the result of smart AI investments.

Eventually, particularly after periods of rapid growth, the law of large numbers kicks in: The bigger a business gets, the harder it becomes for it to maintain its growth rate. So even the best-managed companies will find it hard to deliver triple-digit growth for long. The positive news for investors who own or are considering buying shares of Alibaba is that it says demand for its AI products is ramping up, and that acceleration is arriving courtesy of a diverse customer base.

Another reason Alibaba's AI story could expand next year is the company's ability to deliver large language models (LLMs) at scale and at attractive prices. Alone, that's compelling, and so is the expansive opportunity set for Qwen, Alibaba's competitor to the notorious DeepSeek.

Qwen is being deployed in various forms across Alibaba's businesses, but the LLM is also being embraced by external customers, including AI start-ups and small and medium-sized enterprises. Alibaba has materially cut the cost of Qwen adoption, leading to a significant increase in market share. If it can repeat those feats in 2026, that could be a catalyst for the stock.

Instant commerce could be interesting spark for Alibaba

The status of its AI businesses should be an integral factor when evaluating Alibaba, but investors shouldn't take their eyes off the e-commerce ball. That's where the company's roots are, and there are expansion opportunities there, too. Take the case of "instant commerce," which is a catchy term for getting essential items to shoppers rapidly.

Instant commerce isn't for holiday shopping, but it's a desirable service for things like short grocery lists or cases of late-night munchies. And while the concept is simple, the execution isn't: Alibaba and rivals JD.com (NASDAQ: JD) and Meituan (OTC: MPNGF) are spending big to compete in the segment, which in China alone could be worth as much as $500 billion by 2030.

Instant commerce isn't just a nifty concept for consumers. It offers utility to companies like Alibaba because it can be a tool for identifying regions and customers that are underserved by traditional forms of e-commerce. Its growth could be additive to the AI-centric 2026 outlook for this stock.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.