The recent revival of Chinese tech stocks has breathed new life into the markets, with Alibaba taking center stage in this remarkable resurgenceAfter grappling with extensive regulatory pressures and pandemic-induced consumer downturns, the narrative surrounding the e-commerce behemoth has shifted from one of caution towards a perspective entrenched in future potential.

As we step into 2025, Alibaba's performance stands out distinctly among China's tech giants; its shares have not only surpassed competitors like Tencent and JD.com, but have also surged in both US and Hong Kong marketsIn Hong Kong, Alibaba shares recently closed at HKD 113.80, witnessing a robust 46% increase since hitting a nadir on January 13, contributing to a staggering nearly $87 billion increase in market capitalizationThis eclipses the 25% rise seen in the Hang Seng Tech Index over the same timeframe.

This transformation in Alibaba's fortune is quite compellingInitially, the company faced significant backlash, losing investor confidence under the weight of unfavorable policies and declining performance during the pandemicHowever, as optimism grows around Alibaba's initiatives to develop its own artificial intelligence (AI) services and platforms, confidence in the company has begun to recoverA notable turning point occurred when DeepSeek, a Chinese AI startup, unveiled its technology, prompting Wall Street to reconsider its stance on Chinese tech stocks and reflect on the substantial potential that lies ahead.

The recent collaboration between Alibaba and Apple, aimed at launching innovative AI features in China, has further buoyed Alibaba's stock, demonstrating the beginning of a new chapter for the company in technological innovationIn the wake of such strategic partnerships, analysts are now optimistic about Alibaba's growth prospects.

Andy Wong, the Asia-Pacific investment and ESG lead at Solomon Group, highlighted that DeepSeek’s emergence has sparked a new enthusiasm for AI among Chinese tech stocks

Advertisements

He emphasized that Alibaba’s mid-term earning growth appears more plausible and stable, making it an attractive investment opportunity during this wave of technological evolution.

2025 marks a pivotal year for Alibaba not just due to favorable stock performance, but also because of the leadership transition to Daniel Zhang’s long-time trusted associates, Joseph Tsai and Wu YongmingBoth were part of the original founding team when Alibaba started its journey with TaobaoIn 2023, amidst years of heightened regulatory scrutiny and subsequent post-pandemic stagnation, they were handed the reinsTheir leadership has steered the company back to core fundamentals, focusing on integrating and simplifying its diversified core business operations.

A bold move into the AI sector has also become a keystone of their strategyFollowing the global spotlight on AI due to the introduction of ChatGPT, Alibaba has invested in various promising Chinese startups, including Moonshot and ZhituIn a bid to recover clients lost to competitors during turbulent times, the company has prioritized scaling its cloud business while significantly reducing service costsFurthermore, a financial commitment to AI development has positioned Alibaba in a competitive race that, at the time, was being led by Baidu.

The results from preliminary tests in January indicated that Alibaba's Qwen 2.5 Max outperformed competitors like Meta Platforms Inc.'s Llama and DeepSeek's V3 model, establishing it as a leader in the AI sector alongside rivals like Tencent and ByteDanceThis newfound prowess places Alibaba at the forefront of innovation in AI technology, showcasing its commitment to becoming an industry leader.

However, despite these advancements, the journey isn’t devoid of challengesA critical hurdle for Chinese AI firms remains the slow adoption rate of AI technologies among consumers and enterprises alike, compounded by a general reluctance to invest in such servicesThe uncertainty regarding the monetization and viability of AI capabilities has left some investors hesitant.

In a recent report, Morgan Stanley analyst Alex Yao indicated that many hedge funds and bullish investors are looking at AI as a potential inflection point for Alibaba

Advertisements

There are inquiries about the value of Alibaba’s cloud business and how emerging large language models may contribute to growthWhile the narrative surrounding AI could drive a potential re-rating of the stock, concerns linger about the full monetization of these capabilities.

Moreover, Chinese tech giants have thus far seen lagging growth in cloud business compared to their American counterpartsAnalysts have noted that Alibaba’s cloud revenue in the last quarter in December rose by only 9.7% year-on-year, while competitors like Baidu reported a 7.7% increase, versus Amazon’s and Microsoft’s substantial gains of 19% and 31%, respectively.

Anticipation is building as Alibaba is set to release its financial report next Thursday, offering investors a fresh opportunity to gauge the company’s advancements in AI models and the outlook for its cloud services.

Currently, derivative traders are ramping up their betsOn Wednesday, trading volumes of Hong Kong options soared, reaching more than double the 20-day average, marking the highest levels seen in over four monthsMore than 110,000 call options exchanged hands, alongside significant volume in put options, indicating a strategic positioning against possible downturns.

Even after a strong recent rebound, Alibaba's valuation continues to appeal to many investorsThe anticipated price-to-earnings (P/E) ratio stands at a modest 12.2 times, notably below its five-year average of 14.6 times, suggesting there is still significant upside potential.

Manish Bhargava, CEO of Singapore-based Strait Investment Management, commented that even with the recent increase in share prices, Alibaba remains undervalued compared to its American tech peersHe pointed out the company's strategic efforts to expand into international markets, which could lessen its dependence on China’s domestic market, propelling future growth opportunities.

As of the latest market opening, Alibaba shares continued to rise, with Hong Kong stocks up by 3.69% at HKD 118, while US stocks rose by 2.48% to $121.27, reflecting the growing optimism surrounding the company’s future prospects.

Advertisements