The Zhitong Finance App learned that on August 21, J.P. Morgan Chase pointed out in its latest research report that Alibaba Cloud's current profit margin of about 12% may not fully reflect the profitability of AI infrastructure after entering a mature operation stage.
J.P. Morgan believes that in the past few quarters, Ali has continued to increase capital expenditure. A large number of GPU and data center assets have just been put into operation. Currently, the overall utilization rate is still climbing, and the utilization rate of some of the new assets is about 60%. At this stage, the ROIC for newly invested assets in the first year was about 6%, which is significantly lower than the level of close to 20% in the mature operation stage.
Based on vintage model estimates of different batches of assets, J.P. Morgan believes that even if capital expenditure remains relatively stable in the future and unit economy does not improve further, as early investment assets gradually enter maturity and utilization rates continue to increase, the overall weighted ROIC of AI infrastructure is expected to gradually rise from the current level of about 6% to close to 16%, and the mature stage is expected to move closer to 20%.
Under this assumption, as the efficiency of utilization of existing computing power assets increases, the net free cash flow of Alibaba's AI infrastructure is expected to cross the break-even point around three years after investment.
J.P. Morgan believes that this is also the key to understanding Ali's current AI investment cycle: short-term profit margins are affected by the large number of new computing power assets that have yet to be fully utilized, but as assets gradually mature, there is still room for further release in the profit margin and return on capital of the cloud business.