In recent weeks, the financial world has witnessed significant developments within the technology and e-commerce sectors, with companies like Alibaba gaining notable attentionA key factor behind this rise is the market’s reaction to the company’s release of its flagship AI model, Qwen 2.5, on January 29. Since then, Alibaba’s stock price has surged by 23%, a clear indication of the market's optimismHowever, the context surrounding this stock increase is just as significant as the performance itselfAlibaba’s impressive rise comes in the wake of a major drop in Nvidia's stock, following the DeepSeek event on January 24, marking a contrast between the fortunes of these two tech giants.

In a report released on February 13, analysts from JPMorgan, including Yao Cheng, Zhang Zhi Hong, and Chen Qi, provided an in-depth analysis of Alibaba’s potentialTheir findings suggest that the company's stock still has considerable room to grow, fueled by three primary factors that are driving this upward trajectory.

The first critical aspect highlighted by the analysts is the undervaluation of Alibaba CloudAs the leader in China’s rapidly expanding cloud computing market, Alibaba Cloud's valuation, according to JPMorgan, appears to be significantly lower than its actual worthThe analysts argue that the enterprise value-to-revenue multiple for Alibaba Cloud in 2025 is projected to be only 4 times, a valuation multiple far below that of smaller players in the Chinese cloud market, such as Kingsoft CloudThis discrepancy, they suggest, signals that Alibaba Cloud is undervalued in comparison to its global competitors, particularly when contrasted with companies in the United States, such as Software as a Service (SaaS) providers.

A useful comparison can be made with Microsoft, a company that has a valuation multiple of approximately 10.5 times for its cloud businessIf Alibaba Cloud were to command a similar valuation multiple, its intrinsic value could rise to an eye-popping $185 billion

Advertisements

Under such circumstances, Alibaba’s total market capitalization could reach as high as $391 billion, representing a 39% increase in stock priceWhile some analysts caution that this comparison may be overly optimistic, given the different business models and market positions of Alibaba and Microsoft, it still highlights the substantial growth potential embedded in Alibaba CloudSuch an adjustment would, in turn, boost the company’s market value considerably, reinforcing Alibaba’s growing prominence in the cloud computing space.

In addition to the adjustment of Alibaba Cloud’s valuation multiples, JPMorgan’s report identifies two other factors that are likely to propel Alibaba’s stock price furtherFirst, the analysts revised their revenue forecasts for Alibaba Cloud, expecting the business to grow at a rate of 10% in the fiscal year 2026. This modest forecast leaves room for growth, especially if the company manages to capitalize on new cloud computing trends and expand its client baseFurthermore, the report also suggests that for every 2% increase in revenue growth, Alibaba’s stock price is likely to experience a corresponding 1% increase, making the potential for sustained stock gains very real.

The second major catalyst driving Alibaba’s rise is its e-commerce businessAnalysts anticipate that Alibaba will surpass market consensus estimates for earnings per share by roughly 12% in the fiscal year 2026. This is largely due to the favorable environment within China’s domestic e-commerce market, where the company’s platforms, including Taobao and Tmall, continue to show resilience despite macroeconomic challengesThe expected growth in e-commerce profits signals that Alibaba’s dominant position in China’s retail sector remains robust, even amid market fluctuations.

Moreover, looking to the third quarter of the 2025 fiscal year, analysts expect an increase in the Gross Merchandise Volume (GMV) of Alibaba’s platforms

Advertisements

This would be indicative of both a recovery and growth in customer management revenue, with a significant rebound in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the Taotian Group, Alibaba’s strategic business unitThe increase in GMV represents both an expansion in sales and a boost in Alibaba’s ability to manage its vast customer base effectively, two key drivers of its ongoing profitability.

Despite these positive forecasts, the analysts caution that investors must also consider Alibaba’s current position in its investment cycleThe fiscal year 2025 marks the beginning of a crucial three-year investment cycle for the Taotian Group, which will likely see the company prioritizing market expansion and the acquisition of resources over immediate profit generationThis long-term investment strategy places a greater emphasis on scaling the business and increasing customer retention, rather than seeking short-term profitsIt’s expected that, during this period, Alibaba will focus on expanding its GMV and enhancing its customer management capabilities, positioning itself for long-term growthOver time, as the company stabilizes its market share and improves its monetization strategies, the potential for increased profitability becomes far more tangible.

The importance of cost control strategies during this period cannot be overstatedFor Alibaba to ensure sustainable growth in the future, it will need to manage expenses effectively while continuing to invest heavily in innovation and market expansionAs its market share in key segments solidifies, and its customer base becomes increasingly loyal, the company’s capacity to generate consistent and growing profits will improve, setting the stage for a more predictable and profitable future.

Alibaba’s performance highlights a broader trend in the technology and e-commerce sectors, where companies are recalibrating their strategies in response to evolving market conditions and consumer expectations

Advertisements

While the company’s growth in cloud computing and e-commerce continues to be a key driver of its success, it must also navigate challenges such as increased competition, regulatory pressures, and economic uncertaintyDespite these hurdles, Alibaba remains well-positioned to thrive in the coming years, provided it continues to execute its investment strategy effectively.

In addition, the company’s ability to adapt to changing market dynamics, particularly in the cloud and e-commerce spaces, will be critical in maintaining its competitive edgeAs more businesses and individuals turn to cloud computing solutions and online shopping, Alibaba’s dominance in these areas is expected to growThe company’s diversification into various business lines, from cloud services to logistics and digital media, further strengthens its position as a global leader in the digital economy.

The future trajectory of Alibaba’s stock price will depend heavily on how well it executes its long-term strategyIf the company can successfully scale its cloud services, enhance its e-commerce operations, and manage its investments wisely, the potential for substantial stock price appreciation remains highAs a result, Alibaba is becoming not just a survivor of market fluctuations but a standout performer in an increasingly competitive and rapidly changing business environment.

In conclusion, Alibaba’s recent performance and future prospects underscore the company’s resilience and adaptability in a fast-evolving marketWith its leadership in the cloud and e-commerce sectors, coupled with a promising strategic investment plan, Alibaba is positioning itself for continued growth and successWhile there are challenges ahead, the company's diversified approach and focus on long-term sustainability provide a solid foundation for its futureThe market’s optimistic outlook for Alibaba suggests that it is on track to remain a dominant force in the global tech and e-commerce industries.

Advertisements

Advertisements