Alibaba's (BABA +8.10%) stock closed at a record high of $306.16 on Oct. 27, 2020. At the time, investors were impressed by the Chinese e-commerce and cloud leader's wide moat, rapid growth rates, and its expansion into adjacent markets.
But by Oct. 24, 2022, Alibaba's stock had dropped below its IPO price of $68 and closed at its all-time low of $60.99. Its stock crashed as China's antitrust regulators cracked down on its e-commerce business, formidable competitors like PDD Holdings gained ground, and the broader economy cooled off.
Image source: Getty Images.
However, Alibaba's stock now trades at about $103. It bounced back as its growth stabilized, it streamlined its sprawling business, and it found fresh ways to expand its higher-growth overseas e-commerce and logistics businesses. Let's take a look at the three top reasons Alibaba's stock is still worth accumulating after that impressive recovery.
1. Alibaba's business is gradually stabilizing
Alibaba's revenue growth decelerated significantly from fiscal 2021 to fiscal 2023 (which ended in March 2023). That slowdown was caused by the tighter antitrust restrictions for its e-commerce business, which forced it to end its exclusive deals with merchants and limit its promotional strategies; tougher competition, and the macroeconomic headwinds in China.
|
Metric |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024 |
1H FY 2025 |
|---|---|---|---|---|---|
|
Revenue growth |
41% |
19% |
2% |
8% |
5% |
|
Adj. net income growth |
30% |
(21%) |
4% |
11% |
(9%) |
Data source: Alibaba.
But over the past two and a half years, Alibaba's growth rates stabilized as it expanded its overseas and cross-border marketplaces (Lazada in Southeast Asia, Trendyol in Turkey, and AliExpress for its overseas markets) to reduce its dependence on its maturing Taobao and Tmall marketplaces in China. It also expanded its higher-growth Cainiao logistics business as its cloud infrastructure business recovered.
Alibaba's investments in its higher-growth businesses are compressing its near-term margins, but they'll likely pay off in the future. For fiscal 2025, analysts expect its revenue and adjusted earnings to grow 6% and 1%, respectively, as the Chinese New Year gives its e-commerce business a slight boost through the end of fiscal 2025. For fiscal 2026, they expect its revenue and adjusted earnings to rise 8% and 13%, respectively, as that recovery continues.
2. Alibaba's artificial intelligence (AI) investments are paying off
In 2023, Alibaba launched Qwen, a new family of large language models (LLMs) running on its cloud infrastructure platform. In Jan. 2025, it launched the most powerful version, Qwen 2.5-Max, which it claims can outperform other LLM foundation models like OpenAI's GPT-4o, Meta Platforms' Llama-3.1-405B, and DeepSeek's V3.
Alibaba's rivals will inevitably dispute and challenge those claims, but they indicate the company can continue to expand its AI business even as the U.S. tightens its export curbs on AI chips. Alibaba has been cagey regarding the exact details of Qwen's development, but it's likely powered by a mix of existing Nvidia GPUs, its own first-party AI accelerators, and open-source software running on its own cloud platform.
Qwen's AI expansion could drive more AI-oriented developers and companies to sign up for Alibaba's cloud infrastructure services. The cloud intelligence group's revenue already rose 7% year over year in the first half of fiscal 2025, but it only accounted for 11% of its top line. These fresh AI tailwinds could turn it into a major growth engine again.
3. Alibaba stock looks dirt cheap relative to its growth potential
Alibaba's stock bounced back, but it still looks historically cheap at 11 times forward earnings. By comparison, Alphabet and Amazon trade at 21 and 37 times forward earnings, respectively.
Alibaba trades at such a discount to its U.S. counterparts because the threats of higher tariffs and escalating trade tensions between the U.S. and China are still driving many investors away from Chinese stocks. But if the two sides hold more talks and dial down the pressure, we could see value-seeking investors pivot back toward leading Chinese stocks like Alibaba.
NYSE: BABA
Key Data Points
Investors should keep their eye on its long-term growth potential
Alibaba faces a lot of formidable challenges, but it will likely remain China's top e-commerce and cloud company for the foreseeable future. If you expect it to weather the near-term headwinds as it expands its higher-growth overseas commerce, logistics, cloud, and AI businesses, then it could be the perfect time to buy its undervalued stock.
