How AI Is Powering Alibaba’s Stock Turnaround

Chinese e-commerce and cloud behemoth Alibaba stock (NYSE:BABA) stock rallied by almost 8% in Thursday’s trading after the company posted a better than expected set of Q3 results (fiscal year ends in March), driven by strength in its Cloud Intelligence business and core e-commerce operations. Alibaba’s net income hit 48.945 billion yuan ($6.7 billion) up from the 14.43 billion yuan ($2 billion) reported in the same period of last year.

Improvements In E-Commerce Business

While China’s retail market has been mixed in recent quarters due to uncertain consumer sentiment and slowing economic growth following the real estate crisis, recent data suggests a slight rebound. Chinese retail sales rose by a better-than-expected 3.7% year-over-year in December, driven in part by aggressive government stimulus measures, including interest rate cuts and a sizable fiscal package. Over the last quarter Alibaba said its core Chinese e-commerce assets Taobao and Tmall Group posted a 5% increase in revenue to 136.1 billion yuan ($18.75 billion). In additional to the broader recover in the retail market, Alibaba has also been adjusting its strategy to compete with value-focused rivals like PDD Holdings, the owner of discount platforms such as Pinduoduo and Temu. Alibaba’s cross-border e-commerce platforms, such as AliExpress, has also emerged as key growth drivers, with revenues jumping 32% to 37.8 billion yuan ($5.2 billion) in the most recent quarter. This surge is likely driven by strong performance from initiatives like the AliExpress Choice program, which offers free shipping and other benefits.

Going forward, Alibaba could benefit from its newly tweaked fee model, which replaces annual fixed service fee for vendors with a 0.6% software service fee on gross merchandise value for transactions on Tmall and Taobao. This move could boost revenue from its core customer management services following significant investments in its platforms and technology. Additionally, the company’s digital marketing tool, Quanzhantui, is expected to enhance monetization for Taobao and Tmall marketplaces.

AI And Cloud Growth

Notably, BABA stock has performed worse than the broader market in each of the last 4 years. Returns for the stock were -49% in 2021, -26% in 2022, -11% in 2023, and 12% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could BABA face a similar situation as it did in 2021, 2022, 2023, and 2024 and underperform the S&P over the next 12 months – or will it see a recovery?

Post the big rally over the past few weeks, Alibaba stock trades near $140 per share, equivalent to less than 16x projected FY’25 earnings. The multiple trends lower still if we exclude the company’s $60 billion plus in cash. In comparison, Amazon trades at approximately 35x forward earnings.  We are in the process of updating our $108 price estimate for Alibaba stock. See our analysis of Alibaba’s valuation and Alibaba revenues.

[1] Returns as of 2/21/2025
[2] Cumulative total returns since the end of 2016

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