Alibaba: Strategically Bullish As AI Optimism Drives Multiple Higher

Summary

• Alibaba's stock jumped nearly 50% in a month, fueled by AI optimism from the DeepSeek news and a potential AI partnership with Apple in China.
• The company's core retail business is stabilizing, and overall revenue growth has accelerated on a year-over-year basis in 2Q FY2025, driven by strong performance in the cloud segment.
• While increased spending on AI infrastructure has impacted FCF, down 70% YoY in 2Q, it is expected to drive higher cloud revenue growth, helping to diversify Alibaba's revenue mix.
• The recent rally has pushed its non-GAAP P/E fwd to 13.9x, which still looks attractive, despite potential near-term consolidation.
• I believe BABA's multiple expansion will be driven by AI innovations, despite geopolitical risks and a slower-than-expected macro recovery in China.

Robert Way

Investment Thesis

Alibaba Group Holding Limited's (NYSE:BABA) (OTCPK:BABAF) saw its stock jump more than 50% in one month amid growing investor optimism over its AI boom, pushing it into overbought territory. As a high-quality stock with a

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BABA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.