Morgan Stanley: China's AI Path: Monetizing Surging Token Use via AI Cloud
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Morgan Stanley projects China's AI cloud market to expand at a 72% compound annual growth rate from 2024 to 2029, ultimately reaching RMB 80 billion, with Generative AI's share surging from 6% to 39%. The firm identifies Alibaba as the primary beneficiary and top pick, citing its full-stack leadership across infrastructure, models, and proprietary chips. Morgan Stanley's 2027 fiscal year cloud revenue growth estimate for Alibaba stands at 45%, the highest on the Street.
ByteDance, leveraging its Volcano Engine, is also poised to emerge as a major winner due to its full-stack capabilities and aggressive capital expenditures. Meanwhile, domestic data center operators like GDS and Vantage Data Centers are expected to benefit directly from the accelerating cloud capex cycle, which Morgan Stanley forecasts will reach RMB 539 billion in 2026.
A critical supply-side constraint remains computing capacity. On the demand side, the market is experiencing a notable shift from AI training to inference workloads, driving a massive surge in token usage. To capitalize on this trend, cloud profit margins are expected to expand through optimized utilization, in-house chip development, and potential cloud service price increases.
Alibaba's base target price is set at $180 per share. In a bull-case scenario, assuming cloud growth hits 50% and EBITA margins reach 12% and 14% in fiscal years 2027 and 2028, the stock could reach $260, with the cloud business alone valued at $91.