Over the past 12 months, Alibaba's (BABA 0.73%) stock rose nearly 50% as the company impressed investors with its stabilizing growth and artificial intelligence (AI) efforts. But even after that rally, the Chinese e-commerce and cloud leader's stock price remains 65% below its all-time high from October 2020.
Should investors buy Alibaba's stock today and expect it to keep climbing over the next 12 months? Or will it give up its gains as it faces more macro and competitive headwinds?
What happened to Alibaba over the past year?
Back in fiscal 2022 (which ended in March 2022), Alibaba's revenue rose 19%. But its revenue only grew 2% in fiscal 2023, 8% in fiscal 2024, and 6% in fiscal 2025. That slowdown was caused by three major challenges.
Image source: Getty Images.
First, China's antitrust regulators fined Alibaba in 2021 and barred it from locking in its merchants with exclusive deals, using aggressive loss-leading promotions to gain new customers, and making unapproved investments and acquisitions. The regulators also scuttled a planned IPO for its fintech affiliate Ant Financial. Those restrictions eroded its defenses against its smaller competitors like PDD, JD.com, and ByteDance's Douyin (known as TikTok overseas).
Second, China's economy cooled off -- partly due to the unpredictable "zero-COVID" lockdowns and a softening real estate market -- and consumer spending slowed down. Those macro headwinds also caused its cloud customers to rein in their spending.
As Alibaba's growth decelerated, the bears argued that its high-growth days were over and its business was maturing. Daniel Zhang, who had served as its CEO since 2015, also stepped down in 2023. After Zhang's departure, Alibaba flirted with the idea of spinning off its individual business segments with fresh IPOs -- but those plans never panned out.
NYSE: BABA
Key Data Points
How did Alibaba stabilize its business?
But through all of that noise, Alibaba's business kept growing. In its retail business, the robust growth of its overseas marketplaces (Trendyol in Turkey, Lazada in Southeast Asia, Daraz in South Asia, and AliExpress for cross-border purchases) offset the weaker growth of its Taobao and Tmall marketplaces in China. The warmer macro environment and the expansion of the AI market also generated tailwinds for its cloud infrastructure business. As Alibaba's two core businesses grew again, it cut costs, bought back more shares, and generated a higher mix of revenues from its higher-margin cloud and AI businesses to grow its earnings per share.
|
Metric |
Q4 2024 |
Q1 2025 |
Q2 2025 |
Q3 2025 |
Q4 2025 |
|---|---|---|---|---|---|
|
Revenue growth (YOY) |
7% |
4% |
5% |
8% |
7% |
|
Operating margin |
7% |
15% |
15% |
15% |
12% |
|
Adjusted EPS growth |
(5%) |
(5%) |
(4%) |
13% |
23% |
Data source: Alibaba. In CNY terms. YOY = Year-over-year.
As a result, Alibaba's top line stabilized, its operating margins expanded, and its adjusted earnings grew year over year over the past two quarters. That recovery, along with its ongoing upgrades for Qwen -- its new family of large language models (LLMs) for new generative AI applications -- drew many investors back to Alibaba's stock.
Where will Alibaba's stock be in a year?
For fiscal 2026, analysts expect Alibaba's revenue to rise 7% as its adjusted EPS grows 8%. For fiscal 2027, they expect Alibaba's revenue and adjusted EPS to increase 8% and 14%, respectively. Investors should take those estimates with a grain of salt, but they imply that its overseas e-commerce marketplaces and cloud business will continue to expand.
Since Alibaba no longer plans to spin off its business units as stand-alone companies, it might integrate its cloud, AI, logistics, delivery apps, and brick-and-mortar stores more tightly into its domestic and overseas e-commerce marketplaces. That approach could widen its moat against its less diversified competitors.
Even after its year-long rally, Alibaba's stock trades at just 11 times its forward adjusted earnings. Its valuations are likely being compressed by the tariffs and the trade war between the U.S. and China. But if that pressure eases, it could command a higher valuation again. Assuming Alibaba matches analysts' estimates and it trades at a more generous 15 times its forward adjusted earnings by the beginning of fiscal 2027 (April 2026), its stock could rise 55% to about $167.
Alibaba could still have a bright future. However, investors should only buy its stock if they believe cooler heads will prevail in the ongoing trade war. If you expect those tensions to escalate, it might not be the best idea to chase its latest gains.
