After years of struggle, investors might finally be buying back into Alibaba (BABA 1.67%) stock. Over the last year, the stock has doubled in value.
Alibaba has benefited from unexpected tailwinds, especially in 2025. Now, that begs the question of what will happen to Alibaba over the next year? Will the gains continue in 2026, or should investors expect a pullback?
Image source: Alibaba.
Alibaba in the 2020s
Alibaba stock surged in the last half of the 2010s, but troubles began to emerge after it peaked in 2021. Even though he was no longer running the company, founder Jack Ma disappeared after criticizing the Chinese government.
Additionally, e-commerce growth had begun slowing as competition intensified. Also, in 2022, Chinese stocks like Alibaba faced the threat of delisting from the SEC due to a lack of access to company audits. Even though Chinese regulators and the SEC resolved that dispute, the controversy wiped out all the stock's historical gains.
Beginning in 2024, concerns began to abate, and the stock moved higher. Consequently, since the beginning of 2024, Alibaba is up by more than 110%.
NYSE: BABA
Key Data Points
Many factors seem to have contributed to the recovery. The world witnessed a reduction in political tensions between the U.S. and China. That improved environment has highlighted the company's artificial intelligence (AI) capabilities. Moreover, sales in its two e-commerce segments, Taobao and Tmall, have returned to double-digit annual growth.
Furthermore, amid the gains, its P/E ratio stands at just 23. Considering that one must pay 52 times earnings for its Southeast Asian counterpart, Sea Limited, and a 34 P/E ratio for Amazon, many investors may see its valuation as attractive.
Gearing up for the next five years
Still, despite the lower valuation, investors may have good reason to temper their expectations.
For one, its business growth has slowed. In the first half of fiscal 2026 (ended Sept. 30), revenue of $69.6 billion rose by just 3%. Also, during that time, operating income fell, leading to a net income of $8.8 billion during the first half of the year, a 7% drop from year-ago levels.
A closer look at its revenue shows similarities to Amazon, as the cloud intelligence group grew revenue by 30% over the same period. Unfortunately, revenue for the "all others" category, a conglomeration of Alibaba's smaller businesses, dropped by 27%. That is concerning, as the performance of these noncore businesses stands in contrast to the improvements across the rest of the company.
Additionally, one cannot necessarily assume Alibaba's political risks have gone away. Indeed, Jack Ma, a one-time critic of China's government, is back with the company. His presence has bolstered confidence in the company and the stock.
Unfortunately, the geopolitical environment worldwide has taken a turn for the worse in recent weeks, as observers have highlighted China's ties to Venezuela and Iran. That serves as a reminder that actions by the U.S. and Chinese governments have rattled Alibaba investors in the past and could do so again, possibly leaving Alibaba's shareholders in a no-win position.
Alibaba in five years
Predicting the direction of any stock in five years is murky, but the possibility of renewed geopolitical tensions brings added difficulty when making an Alibaba stock forecast.
Admittedly, bullish investors have many reasons to take a chance on the stock. Alibaba remains the leading e-retailer in China, and the growth of its cloud division and the low valuation make the stock attractive in many respects. If all goes well, Alibaba should outperform the market.
Unfortunately, that valuation is likely low due to the significant possibility that geopolitical tensions could return. Such concerns led to massive selling in Alibaba stock earlier in the decade, and that could occur again.
Thus, investors should treat Alibaba as a high-risk speculative play if they choose to buy the stock. Such an approach exposes investors to the potential growth while mitigating any downside if renewed geopolitical tensions lead to another massive sell-off.
