Chinese e-commerce and cloud leader Alibaba has seen its stock perform weakly this year, rising by just 1%, compared to Amazon’s 27% gain. The company has faced challenges including a slowing Chinese economy and increased competition from new e-commerce players. However, Alibaba remains attractive due to its reasonable valuation and growth potential in areas like artificial intelligence. China’s GDP growth has been weak, retail sales have fallen, and unemployment remains high, impacting Alibaba’s revenue growth in both its e-commerce and cloud computing segments. The stock has declined by 65% from early 2021 to around $80 currently and has underperformed the S&P 500 over the last three years.
Alibaba’s underperformance is in contrast to the success of the Trefis High Quality Portfolio, which has outperformed the S&P 500 each year over the same period. The uncertain macroeconomic environment, high oil prices, and elevated interest rates raise questions about Alibaba’s future performance. However, regulatory issues related to Ant Group, Alibaba’s affiliate, have been resolved, and the company is adjusting its e-commerce strategy. With a current market price of $78 per share, Alibaba’s valuation at under 9.5x forward earnings is compelling compared to Amazon’s 42x forward earnings, despite similar revenue growth projections. Alibaba’s focus on artificial intelligence products within its cloud division is also expected to drive growth.
Alibaba’s recent share repurchases and focus on AI-related products are seen as positive indicators for future growth. The company’s AI-related revenue saw triple-digit growth in the most recent quarter, suggesting potential upside for overall growth. Trefis estimates Alibaba’s valuation at $107 per share, indicating a 37% upside from the current market price. Despite the higher risks associated with Chinese stocks, including regulatory and political concerns, the significant difference in valuation between Alibaba and its U.S. counterparts may not be justified. The company’s efforts in the AI space and its attractive valuation make it a potentially lucrative investment opportunity.
Overall, while Alibaba has faced challenges in a slowing Chinese economy and increased competition, the company’s focus on artificial intelligence, attractive valuation, and recent share repurchases indicate potential for growth. Trefis estimates a 37% upside from the current market price for Alibaba’s stock, suggesting that the company may offer a compelling investment opportunity. Despite regulatory and political risks associated with Chinese stocks, Alibaba’s strong performance in the AI space and its adjusted e-commerce strategy position it as a key player in the evolving market. Investors may want to consider Alibaba as a potential investment opportunity with growth potential in both the short and long term.
