Alibaba Cloud has become a key growth area for the Chinese e-commerce and fintech giant.
China is turning to the technology industry to promote economic growth in various industries.
Alibaba’s valuation is low compared with large U.S. technology companies in similar industries.
10 stocks we like better than Alibaba Group ›
It’s a roller coaster ride for investors Alibaba Group(NYSE: BABA). Fortunately, that last leg of the journey has been positive, with the company’s shares up more than 100% in the past 12 months (as of January 13). It’s a much-needed performance for a stock that has underperformed in recent years. Its share price is still down more than 31% in the past five years.
While everything hasn’t been great for Alibaba in recent years, there is a glimmer of hope for the future. If you’re considering investing in Alibaba, consider these three reasons.
Image source: Alibaba.
Alibaba is best known for its e-commerce business, holding 41% of China’s e-commerce market. However, its cloud platform Alibaba Cloud has seen impressive growth recently as the development of artificial intelligence (AI) brings higher demand.
In the latest quarter, Alibaba Cloud Intelligence Group (CIG) business grew 34% year-on-year, exceeding total revenue, e-commerce revenue and other business units. Revenue from its AI-related products grew by triple digits, bringing its total revenue to $34.8 billion, a 15% increase (excluding the sold Sun Art Retail and Intime businesses).
A key advantage of Alibaba is its artificial intelligence model Qwen. Unlike models such as OpenAI’s GPT, Qwen is an open source model that allows developers to process and integrate it into their own applications. Alibaba recently announced that these models have been downloaded more than 700 million times on Hugging Face, a platform for developers to share models. That’s more downloads than the next eight models combined.
Last year, Alibaba announced that it would invest about $53 billion in artificial intelligence infrastructure over the next two to three years, most of which may be used to expand its data centers and enhance the appeal of Alibaba Cloud.
It’s hard to talk about Alibaba’s business without mentioning the impact of Chinese regulations. Starting around 2020, China began to crack down on the technology industry, which had a huge impact on Alibaba’s business. It came with intense antitrust scrutiny (and roughly $2.8 billion in fines), changed the number of operating platforms, and slowed growth.
Now, the Chinese government appears to be changing the tone of its 15th Five-Year Plan (2026-2030). In the plan, which is expected to be reviewed and approved in March, China has emphasized the digitalization and transformation of logistics, manufacturing, healthcare, energy, education and other industries.
That’s good news for Alibaba because its key businesses – e-commerce, cloud computing and artificial intelligence – are fundamental to the government’s efforts to modernize the economy and increase productivity. Alibaba will never be able to operate freely or without regulation, but the government will become more of a “strategic partner” and view Alibaba and other technology companies as key to China’s progress.
Alibaba’s valuation has soared over the past 12 months, from a price-to-earnings ratio of about 11.6 times 12 months ago to nearly 23 times earnings now. While I don’t think it’s undervalued, it’s an attractive entry point for long-term investors. Not only is it cheaper than the average over the past five years (27.6), it’s also cheaper than U.S. tech companies like Amazon, Microsoftand letter There is also significant cloud exposure and similar overlap in certain industries.
AMZN P/E data provided by YCharts
That’s not to say Alibaba should be taken as seriously as these companies, since Alibaba faces more external risks, but you can buy a top-tier tech company relatively cheap. There will inevitably be bumps along the way, but the company’s trajectory appears to be upward.
Before buying Alibaba Group stock, consider the following factors:
this Motley Fool Stock Advisor The analytics team has just identified what they believe is 10 Best Stocks For investors to buy now…and Alibaba Group is not one of them. The 10 stocks selected could generate huge returns in the coming years.
consider when Netflix This list was created on December 17, 2004… If you invested $1,000 when we recommended, You will have $477,544!* or when NVIDIA This list was created on April 15, 2005… If you invested $1,000 when we recommended, You will have $1,122,686!*
Now, it’s worth noting stock advisor The overall average return is 952% — Outperformed the market compared to the S&P 500’s 195%. Don’t miss the latest top 10 list, available via stock advisorand join an investment community built by individual investors for individual investors.
Stefon Walters works at Microsoft. The Motley Fool owns and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends Alibaba Group and recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.
3 Reasons to Buy Alibaba Stock Like There’s No Tomorrow Originally published by The Motley Fool
