The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Robyn Mak

HONG KONG, Feb 21 (Reuters Breakingviews) - Alibaba's 9988.HK strong comeback features the good, bad and ugly. The Chinese giant's market value has surged 60% to over $320 billion this year. Its e-commerce unit is recovering, providing a solid base to fund new technology ventures. That vindicates boss Eddie Wu's decision to shelve a breakup. But fierce competition remains and the question of how to make money from its bet on artificial intelligence will keep growing.

Results on Thursday show the company is turning a corner after a years-long slump. Revenue in Alibaba's Chinese Taobao and Tmall shopping platforms, which accounted for just under half of the group's top line, inched up 5% to 136 billion yuan ($18.7 billion), three times the pace of the previous year. The company flagged "strong growth" in orders and new users - a nod that Alibaba is no longer losing market share to rivals like the $172 billion PDD PDD.O and ByteDance. Moreover, founder Jack Ma's meeting and handshake with Chinese President Xi Jinping this week points to improving relations between the company and regulators.

A sturdy core will support aggressive bets in AI, where Alibaba pitches itself as the region's top cloud computing provider and a global leader in large language models. Building out the required infrastructure will be costly: the company's capital expenditure over the next three years, Wu outlined on an analyst call on Thursday, will exceed the past decade's total. That's roughly $16.5 billion annually, analysts at JPMorgan calculate.

To compare, Alibaba's cloud business is forecast to generate less than $16 billion in sales this fiscal year to March, per Visible Alpha. But its shopping business, including international operations, is on track to rake in seven times that. Add in non-core asset disposals plus $52 billion of net cash as of December, and Wu has sufficient resources.

The outlook on profitability is more muted. In AI, Alibaba is up against cross-town rival DeepSeek and the $575 billion social media behemoth Tencent 0700.HK in an intensifying price war. The cloud computing unit's operating profit margins next year will be a razor-thin 4%, Visible Alpha forecasts show, despite expectations of double-digit sales growth.

No wonder then that Alibaba trades at 13 times one-year forward earnings, well below its 10-year average of 20 times. Still, after the better-than-expected results, the recent rally looks justified.

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CONTEXT NEWS

Alibaba on February 20 reported revenue of 280 billion yuan ($38.6 billion) in the three months to end-December, an increase of 8% year-on-year. Adjusted earnings rose 6% to 51 billion yuan.

Alibaba's New York shares closed up 8% to $135.97 on February 20.

(Editing by Una Galani and Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on MAK/ robyn.mak@thomsonreuters.com))