Is Alibaba (BABA) finally prepared to capitalize on AI’s momentum worldwide? The company’s shares have rallied strongly since January 10, as investors wake up to Alibaba as a serious competitor in the AI peloton. Currently, Alibaba stands out as a market leader in Chinese e-commerce with a galvanized balance sheet and a mushrooming cloud business already monetizing artificial intelligence (AI).
Maximize Your Portfolio with Data Driven Insights:
- Leverage the power of TipRanks' Smart Score, a data-driven tool to help you uncover top performing stocks and make informed investment decisions.
- Monitor your stock picks and compare them to top Wall Street Analysts' recommendations with Your Smart Portfolio
Moreover, the sprawling Chinese marketplace is now partnering with U.S. giant Apple in a symbolic poke in the eye to politically fearful naysayers. BABA’s valuation remains balanced despite the political risk of trading on the NYSE as a Chinese company.
BABA Stock Remains Reasonably Priced Despite the Political Risk
Alibaba is undeniably a strong and diverse business, leading the e-commerce space in one of the most powerful economies in the world. However, this also brings risks that have troubled Alibaba investors for a while: its close ties to political issues. Geopolitical tensions, a heavy-handed government, and economic weakness in China have pressured Alibaba’s American Depositary Receipts (ADR), which are still down almost 70% from their peak in 2020.
This broader economic situation is behind the underperformance of Alibaba’s business fundamentals. Revenue growth has slowed to single digits in recent years, and free cash flow margins are now just a third of what they used to be. These struggles have caused even some of the most dedicated Alibaba bulls to give up in recent years.
Despite all these challenges, I still believe there are reasons to consider Alibaba. Let’s start with the company’s valuation. Over the past 12 months, Alibaba generated $137 billion in revenue, $12.3 billion in net income, and $14 billion in free cash flow. This results in relatively low multiples for a company of its size—2x revenue, 13.2x earnings, and 18.8x free cash flow, even though at a premium versus key local peers such as JD (JD).
Even though growth has slowed, Alibaba is a decent stock to have in one’s portfolio. The Chinese giant has around $85 billion in investments on its balance sheet, such as cash, short-term investments, equity securities, and investments in equity method investees, including a mix of public and private businesses. When you factor those investments in, the company’s enterprise value drops to $159 billion, meaning its valuation is around 11x free cash flow. On TipRanks, the stock carries a Smart Score of 10, with almost all indicators currently bullish.
Alibaba’s AI Push Set to Generate Price Catalysts
BABA stock is up 33% year-to-date, driven by news about its newly released large language model that outperforms DeepSeek. According to Alibaba, its latest AI model, Qwen 2.5, beat DeepSeek-V3, OpenAI’s GPT-4, and Meta Platforms’ Llama.
One reason Alibaba’s new LLM might be superior is that China is well-positioned regarding algorithms, data, and computing power, especially in AI data collection, compared to Western countries. Plus, Chinese companies like Huawei have made significant advancements in developing GPUs, which helps reduce the need for high-end GPUs like the ones Nvidia (NVDA) supplies.
Alibaba has announced that it plans to use its AI tech to boost its cloud services and e-commerce, mainly as it is looking to expand into Europe and Southwest Asia. However, some challenges still have to be tackled, such as developing more affordable, agile, and scalable enterprise software models.
Alibaba’s Cloud Business Gains Momentum
In the long run, I believe Alibaba’s Cloud business will be the key to returning to the levels it saw 5 years ago. Alibaba’s consolidated revenues are up 5% over the past year, but its cloud division is doing much better. Cloud revenues grew 7% in the most recent quarter, and the company reported that AI-related revenue soared to “triple-digits” but hasn’t disclosed precise figures.
While Alibaba’s stock has been pretty volatile over the past year, with a 52-week high of $117 per share and a 52-week low of $68, I believe the time has finally come for the market to view Alibaba as a formidable AI market player.
If Alibaba’s new AI model is as good as the company claims, its cloud and AI revenue should continue registering impressive quarterly growth figures while outperforming market rivals. Of course, geopolitical risks will always overshadow Alibaba, and any political provocations or scapegoating could lead to highly distressing potential outcomes such as the company being delisted from the NYSE. If political issues can spill into corporate boardrooms with the likes of TikTok and DeepSeek — why not Alibaba?
Is Alibaba Stock a Good Buy Right Now?
On Wall Street, BABA stock carries a Strong Buy consensus rating based on 11 Buy, one Hold, and zero Sell ratings over the past three months. BABA’s average price target is $121.33 per share, which implies a 4% upside potential compared to current levels.
Alibaba Can Succeed Despite the Political Shadow
Alibaba’s plans to integrate AI into its core business could boost profitability by cutting costs and unlocking new revenue opportunities in global markets. Given the stock’s volatility over the past year, I don’t expect much tranquility in 2025, especially with the current geopolitical tensions.
With Alibaba making strides in AI (not to mention helping to mend political bridges with its Apple partnership) and its relatively low valuation compared to global peers, this could be a solid short- to mid-term catalyst for the stock. Moreover, BABA’s growing AI footprint could offer investors balanced long-term exposure to the AI boom, as long as they’re willing to weather the storms and various hiccups along the way.
