Alibaba Group Holding Limited (NYSE: BABA) has had a turbulent few years, but recent developments suggest that the e-commerce and cloud giant is regaining momentum. With a strong pivot toward artificial intelligence (AI), improving fundamentals, and an attractive valuation, Alibaba presents a compelling case for long-term investors.
Strong Financial Performance and Cloud Momentum
Alibaba’s latest June-quarter results reflected a mixed top line but a sharp rebound in profitability. Revenue grew just 2% year-over-year to 247.65 billion yuan, slightly below expectations. However, net income surged 78% to 43.1 billion yuan, driven by investment gains and operating efficiencies.
The standout segment was Alibaba Cloud, which posted 26% year-over-year growth—its fastest pace in over two years. Importantly, AI-related services maintained triple-digit revenue growth for the eighth consecutive quarter. Analysts note that this validates Alibaba’s heavy investment in AI infrastructure, positioning the company as a leader in China’s rapidly expanding generative AI market.
Strategic Investments in AI and Infrastructure
Alibaba is not holding back on future growth. Management has announced plans to invest more than $50 billion (380 billion RMB) over the next three years in AI and cloud infrastructure—more than it has invested in the past decade combined.
In addition, the company is developing its own AI inference chips to reduce reliance on Nvidia amid U.S. export restrictions. This vertical integration strategy could give Alibaba greater control over its cloud ecosystem and long-term cost advantages.
Attractive Valuation and Capital Returns
At around $135 per share (as of August 29, 2025), Alibaba trades at a forward P/E of ~14x, well below both its historical average (21x) and industry peers, many of which trade above 25x earnings.
- CFRA’s 12-Month Price Target: $167, implying ~24% upside from current levels.
- Wall Street Consensus: FY2026 EPS is expected to reach CNY 62.47, rising to CNY 75.19 in FY2027, representing ~20% growth.
Shareholder returns also strengthen the investment case. In FY2025, Alibaba repurchased $11.9 billion worth of shares (a 5.1% reduction in outstanding stock) and paid $4.6 billion in dividends, representing a growing commitment to return capital to investors.
Diversified Business Model with Global Reach
Alibaba’s revenue streams extend well beyond its domestic e-commerce platforms (Taobao and Tmall). Its international commerce arm (AliExpress, Lazada, Trendyol, Daraz) grew strongly in 2025, with 19–36% year-over-year growth as it gains traction in Southeast Asia, Turkey, and South Asia.
Meanwhile, Cainiao Logistics continues to strengthen supply chain capabilities, while its Digital Media & Entertainment segment—including Youku video and Quark search—expands Alibaba’s ecosystem reach. This broad diversification helps mitigate risk and positions the company as a global tech conglomerate, not just a Chinese retailer.
Macro Tailwinds
Despite geopolitical challenges, Alibaba benefits from several favorable macro factors:
- Resilient Consumer Spending: Domestic e-commerce has stabilized with double-digit growth in customer management revenue.
- AI and Cloud Boom: China’s push for digital sovereignty creates structural demand for Alibaba Cloud and AI platforms.
- Emerging Market Growth: International platforms like Lazada and Trendyol tap into some of the fastest-growing e-commerce markets in the world.
Risks to Consider
Investors should remain mindful of several risks:
- Margin Pressure: Heavy capital expenditures in AI, cloud, and quick commerce could weigh on near-term profitability.
- Regulatory Uncertainty: Oversight by the Chinese government remains a key risk factor.
- Competitive Landscape: Rivalry from PDD, JD.com, and international peers like Amazon could intensify.
Fair Value and Price Target
Based on analyst coverage and CFRA research:
- Fair Value Estimate: Around $160–$170 per share, reflecting ~14x FY2026 EPS and in line with Alibaba’s forward multiples.
- 12-Month Price Target: $167 (CFRA), representing ~24% upside from the current price of $135.
- Long-Term View: With projected EPS growth of ~20% annually through FY2027, Alibaba could justify a valuation closer to $180–$200 over the next 2–3 years if execution on AI and cloud continues.
Conclusion
Alibaba stands at an inflection point. While short-term revenue growth has been modest, the company’s aggressive pivot into AI and cloud, combined with attractive valuation metrics, robust shareholder returns, and a price target well above current levels, make it a strong candidate for long-term investors seeking exposure to China’s digital economy.
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