Alibaba (NYSE:BABA) Stock Gains Momentum – Can It Sustain This Growth?
Alibaba (NYSE:BABA) is no longer just a Chinese e-commerce giant. It’s rapidly transforming into a global AI and cloud powerhouse, leveraging its massive data infrastructure and expanding beyond China. Despite this transformation, the stock remains deeply undervalued at just 14x forward earnings, far below U.S. tech giants like Amazon and Microsoft. Alibaba’s Q3 FY2025 results have shown strong recovery signs, with total revenue hitting $38.4 billion, an 8% YoY increase, marking four straight quarters of growth.
The key drivers behind Alibaba’s resurgence are the rapid growth of its Cloud Intelligence Group and its booming international commerce business. The cloud segment saw 13% revenue growth YoY, with demand for AI services fueling expansion. Meanwhile, Alibaba International Digital Commerce Group (AIDC) reported a staggering 32% revenue increase, driven by a surge in cross-border retail and wholesale trade. Despite these strong fundamentals, Alibaba’s stock is still trading far below its historical highs, raising the question—is the market significantly mispricing Alibaba’s transformation?
Alibaba’s AI and Cloud Segment: The Undervalued Growth Engine
Alibaba’s Cloud Intelligence Group is the company’s most promising long-term growth driver, yet the market is failing to recognize its true potential. AI demand is surging, and Alibaba’s cloud segment has maintained triple-digit growth in AI-related product revenue for six straight quarters. This is a major shift, as the cloud unit is now focusing on high-margin public cloud products, improving efficiency and boosting profitability. In Q3 FY2025, adjusted EBITA for the cloud segment jumped 33% YoY to $430 million, pushing its EBITA margin to 9.9%, up from 8.4% last year.
Alibaba’s Qwen2.5 AI model has solidified its leadership in China’s AI race, with over 90,000 Qwen-based derivative models developed globally and more than 290,000 companies using Qwen APIs. The growing adoption of Alibaba’s AI models signals a shift from simple AI experimentation to widespread business integration. The increasing reliance on AI inference—the process of using AI models to drive real-world business decisions—suggests that Alibaba’s cloud business could soon generate more consistent, recurring revenue, making it a serious competitor to Amazon Web Services (AWS) and Microsoft Azure.
Alibaba’s International Expansion: A Major Hedge Against China’s Economy
One of Alibaba’s strongest advantages moving forward is its growing revenue diversification away from China. The international segment has become a major force, accounting for 14% of total revenue in Q3 FY2025. The company’s international retail business surged 36% YoY to $4.3 billion, while wholesale revenue climbed 18% to $850 million. While Alibaba is investing heavily in customer acquisition, the company expects its AIDC unit to reach profitability by FY2026, marking a major milestone in its expansion strategy.
Alibaba’s push into global e-commerce follows the playbook of fast-growing platforms like Temu and Shein, which have rapidly gained market share in the U.S. and Europe. As the international commerce segment scales, Alibaba is positioning itself to become a dominant force in global e-commerce, competing head-to-head with Amazon. Given that the B2B e-commerce market is projected to grow from $12.5 trillion in 2024 to $43.5 trillion by 2033, Alibaba’s international expansion presents an enormous long-term opportunity.
Alibaba’s Stock Remains Deeply Undervalued
Despite these bullish catalysts, Alibaba’s stock remains at historically low valuations. Trading at just 14.5x forward earnings, Alibaba is significantly cheaper than U.S. tech peers like Amazon (57x), Microsoft (34x), and Google (23x). This level of undervaluation suggests that the market is either pricing in extreme downside risks or is completely misjudging Alibaba’s growth trajectory.
Even when compared to Chinese e-commerce peers, Alibaba trades at a steep discount. The company’s EV/EBITDA ratio is 12.4x, compared to Pinduoduo (6.3x) and JD.com (7.4x), despite its broader diversification and superior cloud growth. While Alibaba still faces regulatory overhang and China’s economic slowdown, its growing AI, cloud, and international commerce segments could drive long-term valuation expansion.
Regulatory and Geopolitical Risks: The Biggest Overhang on Alibaba’s Stock
Regulatory headwinds have weighed on Alibaba for years, but China’s stance on tech regulation is gradually shifting. Beijing has recently signaled greater support for private enterprise, with officials meeting top executives to restore confidence in China’s tech sector. While some concerns remain, Alibaba is arguably in a better position today than during the regulatory crackdowns of 2021 and 2022.
The biggest wildcard remains U.S.-China trade tensions, particularly regarding potential tariffs on Chinese goods. While this poses a risk, Alibaba has hedged itself through international expansion, reducing reliance on China’s domestic economy. If geopolitical conditions improve, Alibaba could see a significant valuation re-rating, similar to its 3x stock price increase during Trump’s previous administration despite tariff concerns.
Alibaba’s Buyback Program and Earnings Growth Add More Upside
Alibaba has aggressively repurchased shares, which has reduced outstanding stock by 12.8% since mid-2021. The company still has $20 billion remaining under its buyback program through FY2027, meaning continued repurchases could further boost earnings per share and support stock price appreciation.
Earnings growth remains solid, with EPS expected to grow 12-14% annually through FY2027. If AI monetization accelerates, Alibaba could easily exceed these projections, particularly as its cloud EBITA margins expand. Despite these strong fundamentals, the stock remains stuck in a valuation disconnect from its actual growth trajectory.
Is Alibaba (NYSE:BABA) a Buy, Hold, or Sell?
Alibaba’s stock still trades 50% below its all-time high, but the company is fundamentally much stronger today. AI-driven cloud growth, a booming international business, and a recovering Chinese consumer market position Alibaba for long-term success. While short-term risks exist, the stock’s deep discount relative to both its Chinese and U.S. tech peers suggests the downside is already priced in.
For investors looking for a long-term growth story at a bargain valuation, Alibaba presents a compelling buying opportunity. To track real-time Alibaba stock performance, visit Alibaba Live Stock Chart.
