Alibaba Launches Zhenwu M890 Chip as 41 Analysts Target 40% Upside

Alibaba (NYSE: BABA) stock ended the day up 1.8% at $135.64 on May 19, one day after releasing the Zhenwu M890 AI accelerator in Hangzhou. This is the company's most powerful in-house chip to date and a major step toward its goal of fully controlling the entire AI technology stack, from designing chips to building cloud infrastructure and big language models.

41 analysts tracked by S&P Global give the stock a Strong Buy rating and set an average 12-month price goal of $190.69, which is about 40% higher than where the stock is trading now.

There is real business logic behind the positive case. In the negative case, there is a real loss of money.

What the M890 Actually Represents

Alibaba's chip subsidiary T-Head designed the Zhenwu M890, which has three times the performance of its predecessor and has 144GB of GPU memory and 800GB/s inter-chip bandwidth. These specs were made to meet the memory- and latency-sensitive needs of enterprise-scale agentic AI workloads.

The chip was released at the same time as the Panjiu AL128 Supernode Server, a high-density computer architecture that can connect up to 128 accelerators in a single rack. That system-level integration—improving performance across both hardware and software layers at the same time—shows that Alibaba is competing on AI infrastructure solutions rather than just chip design.

More than 560,000 Zhenwu units have already been sent to over 400 users outside of China, including China Unicom. Alibaba has also said that the Zhenwu series will be upgraded once a year. This is a roadmap promise that builds the kind of corporate customer predictability that global semiconductor leaders use to keep long-term relationships with customers.

Chips from T-Head, the cloud from Alibaba Cloud, and models from Qwen make up the unified AI stack. The Qwen 3.7-Max AI model for coding and agent-based apps is the last piece. The strategic design makes sense and is becoming more useful.

The Commercial Numbers That Support the $190 Target

The launch of the M890 comes at a time when AI income is growing quickly, which supports the consensus among analysts.

In the March quarter, Cloud Intelligence Group made $6.1 billion, 38% more than the same time last year. Revenue growth from the external cloud sped up to 40%. 30% of external cloud income came from AI-related products, which saw triple-digit growth for the 11th quarter in a row. This shows that enterprises are gradually adopting AI, not just seeing a one-quarter spike. 300 million people use the Qwen app every month.

Alibaba's CEO Eddie Wu told investors that the company's AI has "moved beyond the initial investment phase" and is now ready to be used in large-scale businesses. That frame—from investment to commercialization—is what the $190 analyst goal price means. Morgan Stanley keeps its Overweight rating, saying that the launch of in-house chips strengthens Alibaba's place as a full-stack AI company.

Bank of America has a Buy rating and a goal price of $180. Reports say Alibaba is thinking about reorganizing T-Head so that employees might own some of the company and the company might go public in the future. This could bring in more money and let the chip unit grow on its own.

The Bear Case: An Operating Loss and Squeezed Margins

It's clear that the bull case costs money. In the March quarter, Alibaba had an operating loss of $125 million, which is very different from the previous year's big operating profit. The amount spent on capital went up to 26.89 billion yuan. Even though the price went up on hope for AI, adjusted EPS fell sharply.

The squeeze is caused by two spending plans going on at the same time: building up AI infrastructure and giving money to quick commerce to protect market share in fast delivery. Both are showing up on the income account right now, but the returns will add up over time. Analysts generally think that profit growth will stay weak through 2026. However, they do see a big recovery in 2027 if cloud monetisation gets better and spending gets more conservative.

The recent quarter's 84% drop in core profits, which we've already talked about, is the financial truth behind the AI story. People who buy BABA today are betting that the $190 target price means earnings will return in 2027 instead of 2026. That's a long-term bet on execution in a competitive Chinese market where ByteDance, Tencent, and Baidu are all spending a similar amount of money.

At $135 per share, Alibaba trades at a big discount compared to its AI infrastructure peers based on revenue multiple. The 40% difference between what analysts think and what Alibaba is actually trading at shows real commercial traction—38% growth in the cloud, triple-digit AI revenue for 11 straight quarters, and now a chip architecture that backs up the full-stack strategy.

There is more business sense to the M890's customer adoption data and annual upgrade plan than there was in the company's AI announcements a year ago. In order to get there, the running loss and capex trajectory are going to have to be paid. They are also real limits on the quick-term investment case.

The earnings report from Dell on May 28 and the subsequent signals of demand for AI infrastructure will give us more information about whether corporate AI spending is continuing at the rate needed to support the 2027 earnings recovery thesis for cloud infrastructure companies in general.