Many of the biggest stocks on the market are delivering sizzling gains this year. Nvidia has soared more than 160%. Meta Platforms' shares have jumped nearly 120%. Apple, Alphabet, Amazon, and Microsoft are all up more than 35%.
Many analysts aren't as excited about the huge stocks' near-term prospects. But there's another that they really like. Here's the megacap stock Wall Street thinks will skyrocket the most over the next 12 months.
Enamored analysts
Refinitiv recently surveyed 48 analysts who cover Chinese technology company Alibaba Group Holdings (BABA 0.59%). Twenty-nine of them recommend buying the stock. Another 18 analysts are even more bullish, rating Alibaba as a "strong buy." That leaves only one analyst who advises holding the stock.
Just how enthusiastic is Wall Street about Alibaba? The average analyst's 12-month price target for the tech stock reflects an upside potential of 61%.
One analyst is especially optimistic about Alibaba's prospects. The highest price target for the stock is a whopping 110% above the current share price.
Even the most pessimistic analyst thinks that Alibaba's share price can move at least somewhat higher. The stock could rise another 6.5% or so before reaching Wall Street's lowest price target.
Why Alibaba could soar
In Alibaba's quarterly update in May, CEO Daniel Zhang pointed out two reasons why analysts are upbeat about his company. Zhang noted that Alibaba's management team sees "opportunities in China's consumption recovery post the pandemic and the rapid development of artificial intelligence."
China has slowly recovered from the massive impact of the COVID-19 pandemic. Consumer confidence isn't all the way back, but it's improving. That bodes well for Alibaba's huge e-commerce business in the country.
I suspect, though, that Alibaba's AI opportunities are what Wall Street really likes. And the company plans to give investors an even clearer path to profit from those AI opportunities by spinning off its cloud business into a separate entity.
AI is driving organizations across the world to the cloud. A stand-alone cloud business could be more competitive than it is now as part of Alibaba.
We can't leave out Alibaba's dirt-cheap valuation, though. The stock currently trades at a forward-earnings multiple of less than 9.3. Its price-to-earnings-to-growth (PEG) ratio is a super low 0.79.
Risks to keep in mind
Should investors load up on Alibaba stock just because Wall Street likes it? No. The stock might not be everyone's cup of tea.
For one thing, Chinese stocks can come with higher levels of risk. COVID-19 is just one issue. China's government could interfere with Alibaba's operations in ways that hurt shareholders. It's also possible that the U.S. Securities and Exchange Commission (SEC) could delist Alibaba's American depositary shares (ADSs) at some point in the future.
Alibaba faces significant competition. Another Chinese tech giant, Tencent Holdings, is an especially formidable rival.
Unlike most of its counterparts in the U.S., Alibaba isn't generating much growth these days. In its latest quarter, the company's revenue increased by only 2% year over year.
Wall Street could have it right
I don't know if Alibaba stock will really jump 61% over the next 12 months as the consensus price target implies it will. However, I do think that Wall Street could have it right overall about Alibaba.
The reopening of the Chinese economy should create tailwinds for the company. Alibaba's cloud unit is already the biggest player in the Chinese internet-as-a-service market. I expect that the spin-off will improve its competitive position.
I also predict that the rising AI tide will lift all boats over the long term. Even with the cloud-unit spin-off, Alibaba should be a winner with the AI boom.
Sure, the company's profitability isn't where it needs to be. However, my take is that it should improve going forward. I expect this megacap stock will grow much larger over the next decade and beyond.
