We came across a bullish thesis on Alibaba Group Holding Limited (BABA) on wallstreetbets Subreddit Page by FerociousTiger1433. In this article, we will summarize the bulls’ thesis on BABA. Alibaba Group Holding Limited (BABA)’s share was trading at $88.59 as of Nov 15th. BABA’s trailing and forward P/E were 22.94 and 10.27 respectively according to Yahoo Finance.
A computer engineer seated in front of several connected consoles, illustrating the depth of cloud services offered by the company.
Alibaba (BABA) is not just a leading e-commerce player; its cloud division, Alibaba Cloud, is becoming a dominant force in the rapidly expanding cloud market in Asia. As the number one cloud provider in the Asia-Pacific region, with nearly 40% market share, Alibaba Cloud is uniquely positioned to capture the region’s massive growth, which is expected to see a compound annual growth rate (CAGR) of 17.4% by 2028. While its Western counterparts, Amazon’s AWS and Microsoft’s Azure, are major players globally, Alibaba’s stronghold in Asia and its tailored approach to local markets set it apart. Countries like China, Indonesia, and Malaysia rely heavily on Alibaba Cloud for their digital transformation, with the company continuing to innovate through proprietary AI solutions like QWEN, which rivals OpenAI’s GPT in several areas.
The cloud market in Asia is still in the early stages of penetration, offering Alibaba a long runway for growth. The region’s cloud market, which was worth $120 billion in 2023, is expected to more than double by 2028, far outpacing the U.S. market. Alibaba’s infrastructure, covering 28 global regions and over 90 availability zones, gives it an edge in this fast-growing sector, especially as increasing internet adoption, the rollout of 5G, and government incentives drive cloud demand. Alibaba Cloud’s growth is increasingly becoming a major profit engine for the company, much like Amazon’s AWS. While Alibaba’s cloud division is not yet as profitable as AWS, its margins are improving, and the rise in AI-driven demand for compute resources positions it to capture a significant share of this opportunity.
Despite facing regulatory challenges in China, Alibaba Cloud benefits from a favorable environment. The Chinese government promotes Alibaba Cloud’s adoption as part of its national digital strategy, further solidifying its position in the market. Moreover, Alibaba Cloud is expanding internationally, with new data centers being developed in Mexico, expanding its reach beyond Asia.
Valuation-wise, Alibaba is significantly undervalued compared to its Western counterparts. With a price-to-earnings ratio of just 10x, compared to 34x for Microsoft and 62x for Amazon, Alibaba presents an attractive investment opportunity, especially given its cloud revenue growth rate of 30% in Asia. This discount is largely attributed to ongoing concerns over China’s regulatory environment, but for investors who believe in the long-term growth of cloud computing in Asia, this presents a rare value opportunity.
In addition to the cloud division’s growth prospects, Alibaba’s stock is buoyed by a $25 billion buyback program, signaling the company’s commitment to returning value to shareholders. There is also speculation that Alibaba Cloud could eventually be spun off, potentially unlocking massive value for investors, much like AWS did for Amazon. With an upside potential of 30% in the base case and 70% in the bull case, Alibaba presents an exceptional risk/reward opportunity. However, risks remain, particularly from regulatory pressures in China. Nonetheless, as the company continues to leverage its strong position in Asia’s booming cloud market, Alibaba’s stock is poised for significant upside in the coming years.
Alibaba Group Holding Limited (BABA) is on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 91 hedge fund portfolios held BABA at the end of the second quarter which was 103 in the previous quarter. While we acknowledge the risk and potential of BABA as an investment, our conviction lies in the belief that some 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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Disclosure: None. This article was originally published at Insider Monkey.