On April 11, the 2023 Alibaba Cloud Summit was held in Beijing with the theme of “Moving Forward with Reality and Accelerating Innovation”. At the main forum, Ali officially released the Big Language Model and announced that in the future, all of Ali's products will be connected to the Common Meaning of the Thousand Questions. Facing the intelligent era, Alibaba Cloud is still leading the way in technological strength and grasping cutting-edge trends. It is expected to become an important provider of large-scale domestic models and intelligent infrastructure for industries, and further drive the demand for cloud business. At the same time, Alibaba Cloud continues to achieve cost optimization and computing power inclusion through scale effects and technological advantages. The combination of technical capabilities and price advantages is expected to strengthen Alibaba Cloud's competitiveness for enterprise customers. We are still optimistic about Alibaba Cloud's leading edge as a leading domestic cloud vendor, and the subsequent implementation of AI in group business and industrial applications is also expected to drive Alibaba Cloud's valuation upward. We maintain a relatively optimistic attitude about the company's medium- to long-term digital business service capabilities, and maintain the company's “buy” ratings for Hong Kong and US stocks.

Alibaba Cloud Summit 2023: Keep pace with reality and accelerate innovation. On April 11, the 2023 Alibaba Cloud Summit was held in Beijing with the theme of “Moving Forward with Reality and Accelerating Innovation”. It comprised three keynote forums and 12 sub-forums. At the main forum, Ali officially released the Big Language Model with a Thousand Questions, demonstrating the abilities of the General Questionnaire for multiple rounds of dialogue, copywriting, logical reasoning, multi-modal understanding, and multi-language support. At the same time, Zhang Yong announced that in the future, all of Ali's products will be integrated into Qunqian, and comprehensive upgrades will be carried out. Tongyi Qianwu is a new member of the Tongyi Big Model series after M6 and Alicemind. It is expected that further iteration will continue as AI industrialization accelerates. It is recommended to pay attention to AI-related products and industry solutions announced at Alibaba Pin Summit (April 18) and Alibaba Cloud Ecosystem Partner Conference (April 26).

Technical ability: IaaS+PaaS+MaaS reshape the cloud computing technology architecture and lower the threshold to achieve technology inclusion.

In November 2022, Alibaba Cloud pioneered MaaS (Model as a Service) in a forward-looking manner, providing a full range of related services around the model development cycle, and launched an open source model community magic scheme. As artificial intelligence reconstructs applications, software, and services, Alibaba Cloud once again redefines the new “IaaS+PaaS+MaaS” cloud computing technology architecture for the intelligent era. At the IaaS and PaaS layer, Alibaba Cloud streamlines product design and selection details, so that developers can pay more attention to solving practical problems, such as U instances that maintain enterprise-level stability and elasticity while aggregating various server specifications without requiring developers to perform detailed resource matching. As models gradually become an important production factor in cloud development, the importance of MaaS in intelligent development will further increase. By providing rich basic models and industry models, the user usage threshold will be lowered, and business scenario adaptation will be enhanced. Currently, the number of models in the Magic Play community has increased from 300+ in November 2022 to over 800 at present, the number of developers has exceeded 1 million, and the cumulative number of model downloads has reached 16 million.

Based on deep technology accumulation and keen perception of cutting-edge trends, Alibaba Cloud's technological advantages are still expected to stay ahead.

Application scenarios: Internal integration optimizes product experience, empowers and transforms thousands of industries externally. Internally, based on Ali's rich product matrix and business scope, it is expected that the level of business intelligence will be raised through integration with large models.

For example, DingTalk will implement nearly 10 new AI functions, such as writing emails, generating marketing planning plans, and summarizing meeting minutes, to comprehensively improve office efficiency; Tmall Genie will support free conversation after connecting to Gongyi Qian Qian, and knowledge, emotion, personality, and memory ability will greatly improve, thereby optimizing the interactive experience. Externally, Tongyi Qianqian will cooperate with all walks of life to generate industry-specific and enterprise-specific big models to meet the individual needs and business efficiency of enterprises. At present, Alibaba Cloud has carried out technical cooperation exploration and co-creation with a number of companies in scenarios related to the big model. The first batch of cooperating companies includes Geely Automobile, Zhiji Automobile, Chery New Energy, Mild Smart Xing, Taikoo Coca Cola, Bosideng, and Zombiao Technology.

Development outlook: Scale effects and technology iterations help optimize costs and strengthen long-term competitiveness. Benefiting from focusing on the scale effects brought about by the development of public clouds and the efficiency advantages brought about by self-developed technology, Alibaba Cloud's computing power costs have been continuously optimized. Over the past ten years, the cost per unit of computing power provided by Alibaba Cloud has dropped 80%, and storage costs have dropped 88%. In the future, Alibaba Cloud will continue to promote the inclusion of computing power through technology iteration. The company's press conference revealed that the price of elastic computing U instances/object storage reserved space will be reduced by 40%/70%, respectively. At the same time, Alibaba Cloud launched the “Flying Sky Free Trial Plan” to open free trials of 50 core cloud products such as ECS, database PolarDB, and machine learning PAI. The free trial period can reach up to 3 months. The combination of technical strength and price advantage is expected to strengthen Alibaba Cloud's competitiveness for enterprise customers, thereby further catalyzing business growth.

Risk factors: Risk of business adjustments due to policy supervision; risk of financial business supervision; risk related to data security; risk of performance decline due to slowing e-commerce industry penetration and e-commerce platform competition exceeding expectations; risk of performance decline due to slowing macroeconomic growth; risk of declining performance due to repeated effects of local epidemics exceeding expectations; risk of falling performance due to repeated effects of local epidemics exceeding expectations; foreign investment layout dragging down profits; friction factors between China and the US affecting business development and stock price fluctuations; risk of US stock delisting risk, etc.

Profit forecasts, valuations and ratings: We maintain Alibaba Group's FY2023-2025 revenue forecast at 8,664/9,321/991.9 billion yuan, +2%/+8%/+6% year on year; maintain the FY2023-2025 net profit (non-GAAP) forecast to 1324/1,505/167.1 billion, -3%/+14%/+11% year on year. The current price corresponds to the company's Hong Kong stock PE (non-GAAP) 13x/12x/10x. At the group level, based on the SOTP valuation, the Chinese business reference DCF results, we gave the FY2024 10x PE valuation for the Chinese commercial business; based on estimates from the perspective of industry demand and revenue structure, benchmarking the AWS valuation (based on CITIC Securities Research Department's forecast, 2023 6-7x PS), considering revenue growth and EBITA margin differences, we gave the cloud computing business a 2x PS valuation for FY2024. Considering that Alibaba Group's other businesses have not been split and listed, under the neutral assumption, we will only consider Ant Group's investment value and cash valuation for the time being, without considering other business valuations. Based on this, we maintain the target price of the company's FY2024 US stock price of 146 US dollars/ADR and the target price of Hong Kong stock of HK$142 per share for the company's Hong Kong stocks and US stocks.