1. Alibaba Group Holding Limited (NYSE:BABA)
5-year Beta (Monthly): 0.35
Number of Hedge Fund Holders: 115
Alibaba Group Holding Limited (NYSE:BABA), China’s largest e-commerce company and cloud infrastructure provider, offers a broad range of services, from e-commerce platforms to technology infrastructure and marketing services. However, its growth trajectory has become increasingly complicated in recent years. The company faces challenges from government unpredictability and U.S.-China tensions, which are slowing China’s economy.
Its net income has stagnated since 2022, signaling growth concerns. Hopes for a government stimulus briefly lifted the stock, but the gains were short-lived. The company’s e-commerce business, which once led the market, is facing increasing competition both domestically and internationally. As competitors offer lower-cost alternatives, the company’s platforms are under pressure, causing the company to adapt its strategy.
In late November, Alibaba (NYSE:BABA) announced plans to merge its domestic Chinese and international e-commerce operations into a single business unit. This new unit, known as the Alibaba E-Commerce Business Group, will combine the Taobao and Tmall Group with Alibaba International Digital Commerce (AIDC). The AIDC group encompasses a variety of international platforms, including AliExpress, Alibaba.com (its B2B wholesale site), and other regional platforms operating globally, from Southeast Asia to Turkey.
On the cloud infrastructure front, the company is making significant investments, particularly to accommodate the growing demand for AI. In the third quarter, Alibaba Cloud saw a 7% increase in revenue, driven by strong growth in the public cloud sector. Notably, revenue from AI-related products continued to soar, maintaining triple-digit growth for the fifth consecutive quarter, and AI now accounts for a larger share of public cloud revenue.
Management has indicated that, given the sustained demand for AI, Alibaba (NYSE:BABA) will continue to invest heavily in AI infrastructure to meet future needs. It is noteworthy that there was a 70% decrease in free cash flow due to these ongoing investments in its cloud infrastructure.
While we acknowledge the potential of Alibaba (NYSE:BABA) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BABA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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