Top 3 Risks Alibaba Investors Shouldn’t Ignore | Colorful fool

Alibaba Group (BABA 0.12%) continue to remake yourself. Its September 2025 quarter saw a familiar mix of progress and pressure: Revenue rose 5% year-on-year to RMB 247.8 billion ($34.8 billion), cloud revenue jumped 34%, and artificial intelligence (AI) demand remained a strong tailwind.

But profitability fell, non-GAAP (generally accepted accounting principles) net income fell roughly 72%, and free cash flow turned negative as the company invested heavily in data centers, logistics and fast-track business.

This combination describes Alibaba’s current reality. The company’s long-term recovery looks increasingly credible, but investors need to be aware of the real risks that could slow or complicate the recovery. Among the many uncertainties, three stand out as the most important for investors to watch.

1. Competition in e-commerce remains structurally intense

Alibaba’s e-commerce business has stabilized this year, with key account management revenue up 10% year-on-year in the latest quarter. Still, it’s too early to celebrate.

The competitive pressure they face today is very different from ten years ago. Platforms like Pinduoduo continue to win over value-seeking customers with aggressive pricing and an unrivaled reputation for value. Meanwhile, Douyin has consistently reshaped online shopping behavior by merging short content with product discovery. JD.comon the other hand, it remains strong in categories that rely on consumer confidence, such as electronics and high-value home goods.

This competitive trifecta makes maintaining growth and protecting margins much more challenging than in the past. For Alibaba, defending its core business engine now requires constant product innovation, better buyer retention strategies and more accurate personalization tools.

The risk for investors isn’t that Alibaba will lose relevance — its ecosystem remains vast — but that the company will never regain the margin profile it once had. This is important because younger growth engines such as artificial intelligence (AI) and cloud computing still require a lot of investment that must come from their mature e-commerce profits.

In other words, if the trading business fails to deliver steady growth while maintaining margins, Alibaba’s broader transformation will be harder to finance and justify.

Today’s Change

(-0.12%$-0.19

Current price

$158.13

Key data points

Market capitalization

355 billion dollars

Daily range

$156.41 -$158.74

Range 52 weeks

$79.43 -$192.67

Volume

7.3 million

Avg. flight

18 million

Gross margin

40.73%

Dividend yield

0.66%

2. Fast trading continues to drag profitability

To stay competitive in China’s fast-changing retail landscape, Alibaba has aggressively leaned into local high-frequency fast-moving business. Strategically, this move makes sense. High-frequency purchases keep users active, strengthen loyalty to the Taobao ecosystem, and protect Alibaba from losing daily shopping habits. Meituan or Pinduoduo.

However, these initiatives are associated with high financial costs. The September 2025 quarter made this clear. Alibaba’s logistics and fulfillment spending rose as it expanded last-mile capabilities, while customer acquisition remained expensive due to increased promotional activity.

These costs directly contributed to the sharp decline in profitability and negative free cash flow. For perspective, adjusted earnings before interest, taxes, depreciation and amortization (EBITA) fell 76% for China’s e-commerce business.

Quick business is notoriously difficult to scale profitably. Small basket sizes, labor-intensive delivery networks, and the need for hyperlocal inventory make unit economics challenging for even the most efficient operators. Alibaba hopes that automation, data routing and better order density will improve efficiency over time. However, until it proves that these services can operate with less financial cost, fast-paced business will remain a structural drag on margins.

3. Investor sentiment toward Chinese technology remains unpredictable

Even as Alibaba reports solid operating results, the stock remains hostage to broader swings in sentiment. Investors continue to react sharply to macroeconomic headlines related to China’s economic recovery, consumer confidence or regulatory stance. Concerns about US-China relations are amplifying this effect, especially in areas related to technology transfers, semiconductors and cloud infrastructure.

The September quarter showed that Alibaba can outperform in AI and cloud, yet still face subdued stock performance if investors remain concerned about profitability or China’s macroeconomic outlook. This unpredictability means that fundamentals and sentiment do not always move in tandem. Investors who own Alibaba must accept that the stock will experience periods of volatility that reflect broader market psychology rather than the company’s actual performance.

These dynamics do not negate Alibaba’s long-term potential, especially when it comes to the scale of cloud and AI revenues. However, it does mean that investors must place positions carefully, size positions appropriately, and remain patient through sentiment-driven swings.

What does this mean for investors?

Today, Alibaba is a company in transition.

Its cloud and AI businesses are gaining real traction, and the September quarter provided clear evidence that the company is becoming a major force in China’s AI infrastructure market. At the same time, the financial rush of fast trading, the intensity of e-commerce competition and the unpredictable environment of sentiment are creating a more nuanced investment environment.

Investors who believe in Alibaba’s long-term pivot should keep a close eye on execution, with particular attention to cloud margins, cash flow trends and whether the economics of fast-paced commerce are starting to pick up.

Those who want smoother gains or lower volatility may prefer to wait for more obvious signs of profit stabilization.