We recently compiled a list of the 12 Undervalued Wide Moat Stocks to Buy According to Analysts. In this article, we are going to take a look at where Alibaba Group Holding Limited (NYSE:BABA) stands against the other undervalued wide moat stocks.

As per BlackRock, European equity gains have managed to outpace the US to start 2025. Despite this, the asset manager expects the US to reclaim leadership this year as the corporate earnings strength and the AI theme broaden out. The US equities have long exceeded the performance of their global peers. BlackRock expects that this has been made possible because of deeper capital markets and relative deregulation which promote risk-taking. The US can keep its edge, despite the S&P 500 lagging so far this year.

Markets to Broaden Out in 2025, Says BofA

As per Savita Subramanian, head of US Equity and Quantitative Strategy for BofA Global Research, the market has been broadening out. Last year and the year before that, the mega-cap tech companies managed to outperform the rest of the S&P. However, in the current year, broader market trends are visible. As per Subramanian, higher productivity and reshoring of manufacturing to the US are the 2 positive forces that are expected to fuel potential market growth beyond the tech sector.

As per Reuters, the volatility is expected to increase due to tariff announcements, policy changes from President Donald Trump, and job cuts, resulting in uncertainty. Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan, has a year-end forecast for the S&P 500 of 6,500 as his “base case.”

READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.

BlackRock Remains Overweight on US Stocks

BlackRock expects that mega-cap tech and other AI-linked stocks will keep driving the US equity returns, mainly as and when the AI adoption grows. That being said, there are signs of earnings strength broadening beyond technology. The analysts now anticipate tech to post 18% earnings growth this year in comparison to 11% for the broader index. As per the LSEG data, this is a smaller gap versus 2024.

Overall, strong economic growth, broadening of earnings growth and a quality tilt underpin the firm’s conviction and overweight in US stocks as compared to other regions. The valuations for the big tech are backed by healthy earnings, and less lofty valuations for several other sectors. As per Kristy Akullian, CFA, Head of iShares Investment Strategy, there are tailwinds potentially favoring US equities over the rest of the world, mainly large-cap companies. The relatively easy financial conditions, healthy consumer balance sheets, and the expectations of deregulation and tax cuts continue to support the positive view.

Our Methodology

To list the 12 Undervalued Wide Moat Stocks to Buy According to Analysts, we used a screener and sifted through several media reports to choose companies having an economic moat and that analysts see upside to. Next, we filtered out the ones that trade at a forward P/E of less than ~20.0x. Finally, the stocks are arranged in ascending order of their average upside potential, as of February 28.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

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.”

Overall BABA ranks 6th on our list of the undervalued wide moat stocks to buy according to analysts. While we acknowledge the potential of BABA as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued 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.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.

Disclosure: None. This article is originally published at Insider Monkey.