6) Alibaba Group Holding Limited (NYSE:BABA)
Average Upside Potential: ~20.5%
Forward P/E as of February 28: ~13.2x
Number of Hedge Fund Holders: 107
Alibaba Group Holding Limited (NYSE:BABA) offers technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses engage with their users and customers. The company continues to enjoy a wide economic moat, thanks to its strong network effect. Morgan Stanley upped the company’s stock to “Overweight” from “Equal weight” with a price target of $180, an increase from $100.
The firm believes that it has underestimated the surge in Alibaba Group Holding Limited (NYSE:BABA)’s Al-driven cloud demand and resiliency of its core Taobao and Tmall Group business. As per the analyst, the company’s cloud revenue is expected to double in 3 years. With the broader market shifting its focus from weak consumption to technological breakthrough in China, the analyst opines that the Chinese internet companies continue to offer superior exposure to AI enablers/adopters.
Alibaba Group Holding Limited (NYSE:BABA)’s strong investment in AI goes over and above its cloud business. The company continues to leverage AI to enhance the e-commerce platforms, improving the ad tech capabilities. With Al becoming increasingly critical to the business operations throughout industries, Alibaba Group Holding Limited (NYSE:BABA)’s early investments can result in a significant competitive advantage and fuel substantial long-term growth. The integration of AI throughout its platforms can result in enhanced operational efficiency, improved user experiences, and new revenue streams.
Alluvium Asset Management, an asset management company, released its Q3 2024 investor letter. Here is what the fund said:
“On 24 September the People’s Bank of China unveiled a massive three part stimulus package involving: (1) slashing the amount of cash banks need to hold in reserve and lowering the main policy interest rate; (2) cutting mortgage rates on existing home loans by 0.5% and reducing down payment requirements for second homes from 25% to 15%; and (3) supporting equity markets by a USD 114b lending pool to encourage companies to buy back shares and non-bank financial institutions to buy local equities (which may be expanded by the same amount two more times)5 . We are flabbergasted. But we shouldn’t be. After all, these types of arrangements have been all too common over the last 15 years. The local equity markets responded with gusto, and for the last week of the quarter the CSI 300 Index (Shanghai and Shenzen listed companies) was up 25.1%. Alibaba Group Holding Limited (NYSE:BABA) was not lost in all this, and returned 26.8% over that one week period. But Alibaba had already performed well so during the whole September quarter it was up a staggering 56.0%. As a result, Alibaba is no longer the cheap stock it once was. It now trades at a premium to our valuation – a valuation which admittedly had been progressively reduced over our holding period as a result of deteriorating business fundamentals. As a result of Alibaba’s significant outperformance, by the end of the quarter it had reached 3.7% of the Fund. We are weighing up our options here, considering the relative risk.”
