Amazon vs. Alibaba: Which AI and E-Commerce Stock Is the Better Buy?

Amazon AMZN and Alibaba Group BABA lead e-commerce on their continents, each evolving into cloud and AI powerhouses. Amazon dominates North American and international marketplaces, with Amazon Web Services (“AWS”) anchoring global cloud infrastructure. Alibaba, via Taobao and Tmall, remains China's commerce backbone, with Alibaba Cloud as a regional AI leader.

Both companies reported quarters marked by heavy AI capex and accelerating cloud growth, a timely comparison.

Let's delve deep and closely compare the fundamentals of the two stocks to determine which one is a better investment now.

The Case for AMZN Stock

Amazon's second-quarter 2026 results underscore why it remains the stronger of the two names right now. Net sales climbed 20% year over year to $200.6 billion, while operating income surged 43% to $27.5 billion, with AWS accelerating to 37% growth, its fastest pace in eighteen quarters, reaching a $169 billion annualized revenue run rate. Management highlighted that AWS' AI and custom chips businesses, including Trainium and Graviton, each now exceed a $25 billion annual revenue run rate, giving Amazon a differentiated, vertically integrated AI infrastructure stack that few rivals can currently match. New agentic offerings, including Amazon Quick and expanded Amazon Connect solutions, are gaining enterprise traction and diversifying monetization well beyond core cloud hosting and retail commerce.

Advertising revenues grew 26% year over year to $19.8 billion, reinforcing a high-margin, fast-growing complement to retail and cloud. For the third quarter, Amazon guided net sales of $197 billion to $202 billion and operating income of $22.5 billion to $26.5 billion, with management noting that underlying growth, excluding Prime Day timing shifts, would run nearly 400 basis points higher.

Challenges remain as elevated 2026 capital expenditure of roughly $220 billion is pressuring free cash flow, and management has acknowledged capacity constraints limiting how much AWS demand it can currently fulfill through 2027. Rising memory chip and transportation costs also pose near-term margin risk. Even so, Amazon's diversified revenue base spanning retail, advertising and rapidly scaling AI infrastructure gives it a broader, more resilient growth runway than most peers currently offer investors today.

The Zacks Consensus Estimate for AMZN’s 2026 earnings is pegged at $13.06 per share, indicating an 82.15% increase from the figure reported in the year-ago quarter.

The Case for BABA Stock

Alibaba's fiscal first-quarter 2027 results, reported in August 2026, show a company mid-transition. Total revenues rose 9% year over year to RMB269.0 billion, driven by Alibaba Cloud, whose external revenues surged 45%, its fastest pace in 22 quarters. AI-related product revenues reached RMB12.4 billion, a 12th straight quarter of triple-digit growth, now representing 35% of external cloud revenues at an annualized run rate above RMB49.5 billion. Management pointed to Alibaba Cloud's rising EBITDA margin, up to roughly 12%, and reiterated that cloud growth should keep accelerating alongside sequential margin improvement as AI adoption scales.

The costs of that buildout are visible. Capital expenditure reached RMB67.7 billion for the quarter, pushing free cash flow to an outflow of RMB44.7 billion, while adjusted EBITDA fell 30% and GAAP net income dropped 75% year over year, reflecting heavy technology and infrastructure investment alongside e-commerce competitive pressure. Alibaba's core e-commerce group grew a modest 4%, with customer management revenues declining, though management expects quick commerce to reach overall profitability by fiscal 2029 and eventually contribute a meaningful share of platform volume.

Alibaba's original three-year, RMB380 billion AI and cloud infrastructure commitment now appears understated relative to actual demand, with leadership indicating spending could run higher than originally planned. That signals confidence in long-term AI monetization but also extends the timeline before near-term profitability stabilizes. For investors, Alibaba represents a genuine AI and cloud growth story still working through a costly, multi-year investment phase with tangible commercial traction but persistent margin and cash flow headwinds.

The Zacks Consensus Estimate for fiscal 2027 earnings is pegged at $6.87 per share, implying 76.61% year-over-year growth.

Valuation and Price Performance Comparison

Alibaba trades at a forward P/E of 15.02x versus Amazon's steeper 22.59x, yet Amazon's premium looks justified given its faster-accelerating, higher-margin AWS growth, diversified advertising engine, and clearer path back toward strong free cash flow generation once elevated capex normalizes.

AMZN vs. BABA P/E Ratio

Image Source: Zacks Investment Research

On price performance, Alibaba shares have declined 18.6% year to date, reflecting persistent margin and cash flow pressure, while Amazon shares have gained 12.1%, reflecting investor confidence in its execution. Amazon's premium valuation, paired with positive momentum, signals the market is rewarding demonstrated AI monetization and operating discipline, making the current price still an attractive entry point relative to its growth trajectory.

AMZN Outperforms BABA YTD

Image Source: Zacks Investment Research

Conclusion

Amazon's edge over Alibaba rests on accelerating AWS growth, a diversified advertising and agentic AI business, disciplined execution reflected in expanding operating margins, and clear forward guidance pointing to continued momentum despite heavy AI capex. Alibaba offers genuine cloud and AI commercialization progress, but persistent cash flow outflows, declining net income and e-commerce softness weigh on near-term conviction. Amazon's premium valuation appears earned given stronger fundamentals and positive price momentum, while Alibaba's discount reflects unresolved profitability questions. Investors seeking better upside potential should buy AMZN now, while holding BABA shares and awaiting a more attractive entry point before adding exposure. AMZN currently carries a Zacks Rank #2 (Buy), whereas BABA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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