In a research note Wednesday morning, SunTrust analyst Bob Peck predicted that Alibaba's cloud business could pull in $1.2 billion by 2018. Alibaba reported $204 million in revenue from cloud & Internet Infrastructure for the 2015 fiscal year, and SunTrust expects that number to rise to $393 million for the 2016 fiscal year.
Cloud services allow companies to outsource their data centers, freeing them from the obligation to host software and applications in-house. The cloud stores that data remotely, providing access through the Internet.
Alibaba's cloud business currently accounts for less than 2% of the company's total revenue, but that could grow to 10% in just five years, according to Peck. He rates Alibaba as a buy with a $110 price target.
"We believe that 'public cloud IT' is something that inherently fits into Alibaba's core mission of helping connect people and making it easier for people to do business," Peck said. "When Alibaba started, its mission was providing the marketplace for buyers and sellers to connect. However, as the Internet has developed in China, these buyers and sellers are requiring more and more services."
The U.S. cloud market is expected to grow to $75 billion by 2018, with the Chinese cloud market reaching $2 billion by 2018, according to IDC.
Aliyun, as Alibaba's cloud division is known, is already the leader in China's cloud industry, with a 23% market share, followed by two domestic companies -- China Telecom (CHA) and China Unicom (CHU) -- and then two foreign companies -- Microsoft (MSFT) and Amazon (AMZN) -- according to IDC. But Aliyun certainly has room to grow both in China and in the U.S.