5. Alibaba Group Holding Ltd. (NYSE:BABA)
Forward Price-to-Earnings Ratio: 11.31
Market Cap as of September 26: $206.51 billion
Number of Hedge Fund Holders: 91
Alibaba Group Holding Ltd. (NYSE:BABA) is a Chinese multinational technology company specializing in e-commerce, retail, Internet, and technology, offering products and services like e-commerce, cloud computing, mobile payment, digital media, and artificial intelligence. The company is best known for its e-commerce platforms, such as Taobao, and Tmall, which are among the largest online marketplaces in the world.
In FQ1 2025, revenue was up 4.59% from the year-ago period. E-commerce business generated was up 4% year-over-year. Global e-commerce ventures, like Lazada and Aliexpress, experienced a 32% increase in sales in the international online shopping sector. Quarterly revenues from its cloud division reached a 6% increase. Moreover, revenue from AI-related products experienced a year-over-year growth of over 155%.
The company has been using AI chatbots for years and has recently made significant advancements in its cloud business. The cloud segment benefits from AI-powered personalized suggestions and is developing a large language model called Qwen 2.0. Its AI cloud platform has seen strong growth, indicating positive user reception.
Alibaba Group Holding Ltd. (NYSE:BABA) driving growth in the competitive e-commerce market through its innovative AliExpress Choice service. The company’s recent fee increase announcement has positively impacted market sentiment. With a rapidly expanding market, it is well-positioned for long-term growth due to its competitive advantage and strong brand.
O’keefe Stevens Advisory stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter:
“We initiated two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO). Both have seen their stocks decline over 70%+ from their all-time highs.
Alibaba is the largest e-commerce player in China, with 40% gross merchandise volume (GMV) market share through its Taobao and T-mall businesses. While the cloud computing business is relatively small, its 37% market share in China positions it well to capitalize on the increasing demand for AI-related products. In the most recent quarter, AI-related cloud revenue recorded triple-digit growth y/y, with the expectation that total cloud revenue will accelerate to double-digit growth in 2H 2025.
It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business. All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23…” (Click here to read the full text)
