Alibaba Cloud has been a key growth area for the Chinese e-commerce and fintech giant.
China is shifting its focus to the tech industry, boosting economic growth in industries.
Alibaba is trading at lower valuations than major U.S. tech companies in similar industries.
10 Stocks We Like Better than Alibaba Group
It has been a roller-coaster ride for investors Alibaba Group (NYSE: BABA). Fortunately, the last leg of the ride has been positive, with the company’s stock up 100% over the past 12 months (through January 13). That was a much-needed performance for a stock that has not performed well in recent years. Its stock is still down 31% over the past five years.
While things haven’t been great for Alibaba in recent years, there are glimmers of hope going forward. If you’re considering investing in Alibaba, here are three reasons to do so.
Alibaba is known for its e-commerce business, holding a 41% market share in e-commerce in China. However, its cloud platform, Alibaba Cloud, has recently grown impressively as artificial intelligence (AI) developments have increased demand.
In the last quarter, Alibaba’s Cloud Intelligence Group (CIG) segment grew 34% year-over-year in total revenue, e-commerce revenue, and more than its other business segments. Its AI-related product revenue grew by triple digits, helping bring its total revenue to $34.8 billion, up 15% excluding its divested Sun Art and InTime businesses.
Alibaba’s main advantage is its AI model Queen. Unlike models like OpenAI’s GPTs, Qwen is an open source model that lets developers work on it and integrate it into their own applications. Alibaba recently announced that models have surpassed 700 million downloads on Hugging Face, a platform where developers share models. This is more downloads than the next eight models combined.
Last year, Alibaba announced it would invest about $53 billion in AI infrastructure over the next two to three years, much of which will go toward expanding data centers and strengthening the appeal of Alibaba Cloud.
It’s hard to talk about Alibaba’s business without mentioning the impact of Chinese regulations. In early 2020, China launched a crackdown on its tech sector that had a major impact on Alibaba’s business. This came with intense antitrust scrutiny (and nearly $2.8 billion in fines), how many platforms operated, and growth slowed.
Now, the Chinese government seems to have changed its tune with its 15th Five-Year Plan (2026 to 2030). In the plan, which is expected to be reviewed and approved in March, China has emphasized digitizing and transforming industries such as logistics, manufacturing, healthcare, energy, education, and more.
This is big news for Alibaba because its core businesses — e-commerce, cloud computing, and AI — are actually being pushed by the government to modernize its economy and boost productivity. By no means will Alibaba be able to operate independently or without oversight, but the government will become something of a “strategic partner” and consider Alibaba and other tech companies essential to China’s progress.
Alibaba’s valuation has risen over the past 12 months, trading at 11.6 times earnings 12 months ago to now trading at 23 times. While I don’t consider it undervalued, it is an attractive entry point for long-term investors. Not only is this cheaper than the average over the past five years (27.6), it’s also cheaper than US tech companies. Amazon, Microsoftand Alphabet Which has a lot of cloud exposure and similar overlap in some industries.
That doesn’t mean Alibaba deserves to be valued like those companies because Alibaba has a lot of external risks, but you’re getting a premier tech company relatively cheap. There will inevitably be volatility along the way, but the trajectory looks promising for the company.
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Stephen Walters has a position at Microsoft. The Motley Fool has positions on and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends Alibaba Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. Motley Fool has a disclosure policy.
3 Reasons to Buy Alibaba Stock Like No Fool was originally published by The Motley Fool
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