Alibaba Group (BABA -0.70%) has tested investors' patience over the past few years. Regulators cracked down, China's consumer spending slowed, and rivals like Pinduoduo and Meituan intensified competition. The company went from China's undisputed tech champion to a stock that many investors abandoned.
In 2025, the story shifted. Alibaba's stock surged nearly 87% in the last 12 months (as of this writing on September 17), crushing the Hang Seng Index and even outpacing the Nasdaq Composite. With such a sharp rebound, investors now face the question: Should they take profits, or hold on for more upside?
Image source: Pinduoduo.
What fueled the rally?
The recent rally isn't just sentiment-driven -- Alibaba has started delivering tangible progress in areas investors care about.
In its June 2025 quarter (fiscal Q1 2026), the company reported revenue of RMB 248 billion ($34.6 billion), up 10% year over year (on a like-for-like basis), marking a return to double-digit growth after a stretch of stagnation. More importantly, its cloud business has become the standout performer. Alibaba Cloud revenue surged 26% to RMB 33.4 billion ($4.7 billion), and management disclosed that AI-related revenue grew at triple-digit rates for the eighth consecutive quarter.
That shift is critical because cloud and AI are where the growth is, compared to Alibaba's traditional e-commerce business. With its large language model, Tongyi Qianwen, already integrated across enterprise and consumer applications, Alibaba is positioning itself not just as an e-commerce leader but as an AI platform provider.
Meanwhile, Alibaba has also leaned into growth areas like quick commerce to defend engagement against Meituan and Pinduoduo. While costly in the short term, these moves show management is willing to play offense again rather than simply cutting costs. So far, the outcome has been solid, with e-commerce growing at 10% year over year in the latest quarter.
Together, stronger results, a credible AI story, and signs of renewed strategy execution have fueled the stock's rebound.
The risk of selling too soon
After a near doubling in share price, it's tempting to lock in gains. But selling stock now can mean missing out on the next leg higher.
Alibaba's stock remains far below its peak valuation. At a price-to-sales ratio of just 2.8, shares trade at a fraction of their 2020 multiple of around 7-9 times. Even after the rally, Alibaba is valued more like a retailer than a dominant technology platform with multiple growth levers.
Investor sentiment is also just beginning to shift. In recent weeks, analysts at Mizuho, Bernstein, and Citi raised their price targets or reiterated bullish ratings, citing cloud momentum and AI adoption as underappreciated catalysts. If earnings momentum continues, more institutional investors may return to the stock, driving a potential rerating.
In short, the fundamentals don't suggest Alibaba has already "topped out." Instead, the recovery could be in its early stages if execution holds up.
Alibaba has plenty of work remaining to do
Still, the rally is not entirely risk-free. Alibaba still faces fierce competition in its core e-commerce business from Pinduoduo's low-price strategy and Meituan's dominance in local services. Profitability has also come under pressure from its heavy investments in quick commerce, which weighed on earnings last quarter despite healthy revenue growth. For perspective, non-GAAP net income fell 18% in the latest quarter despite improving revenue.
Geopolitics remains another overhang. U.S.-China tensions around technology exports could complicate Alibaba's cloud and AI ambitions, though the company is hedging this risk by developing its own domestic AI chips.
These factors mean investors should expect volatility ahead, even if the long-term trajectory improves.
What it means for investors
Alibaba's massive rally in 2025 is impressive, but context matters. The stock has rebounded from depressed levels and still trades at attractive valuations. The company's cloud and AI growth show genuine signs of transformation, and early sentiment shifts hint that institutional investors are beginning to take notice.
At the same time, Alibaba isn't out of the woods yet. Competition, macro uncertainty, and regulatory risks remain part of the story.
That's why the best framing may be this: Alibaba is moving from being a "broken" stock to one with optionality again. In other words, the recovery may have more room to run, provided Alibaba executes on its cloud, AI, and commerce strategies in the coming quarters.
For long-term investors, that makes holding -- rather than selling into the rally -- a reasonable approach.
