We came across a bullish thesis on Alibaba Group Holding Limited (BABA) on Substack by Bulls On Parade. In this article, we will summarize the bulls’ thesis on BABA. Alibaba Group Holding Limited (BABA)’s share was trading at $124.73 as of Feb 14th. BABA’s trailing and forward P/E were 25.90 and 12.92 respectively according to Yahoo Finance.
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DeepSeek’s breakthrough in AI model efficiency has sent waves through the global tech industry, marking a significant turning point in the evolution of GenAI, akin to the disruptive impact of ChatGPT’s debut. China has now experienced its own transformative moment with the unfolding DeepSeek drama, prompting Chinese companies to swiftly announce advancements in the GenAI space. Alibaba (BABA), in particular, has capitalized on this momentum, unveiling its own impressive AI developments, including the highly efficient Qwen family of large language models (LLMs). The company has furthered its AI offerings with the launch of the Qwen 2.5-VL model, which acts as an AI agent capable of controlling a user’s devices, adding real-world utility to its technology.
This strategic shift places Alibaba as a leading player in the GenAI race, especially with the company’s recent partnership with Apple. The combination of cutting-edge model efficiency and practical applications positions Alibaba as a top contender in the AI space for 2025. As previously noted in an analysis of Chinese equities, Alibaba’s position is bolstered by the country’s stimulus packages, which have fueled the company’s aggressive share buyback programs and solidified its financial standing.
In a notable development, Alibaba’s Qwen2.5-Max model has outperformed peer models, including DeepSeek’s V3, in key benchmarks, and is now integrated into the Qwen Chat tool. The model’s API is also available to developers, offering them the opportunity to build their own AI applications using Alibaba’s efficient models. This accessibility, paired with Alibaba’s competitive pricing for developers, makes Qwen an attractive platform for AI application development. The company’s Cloud division has also seen significant growth, with its revenue from AI-related products increasing sharply, propelling Alibaba’s Cloud business closer to double-digit growth.
Alibaba’s solid performance extends beyond AI, as its core businesses, such as Taobao and Tmall, have demonstrated consistent revenue growth, and its logistics arm continues to gain traction. With these positive fundamentals, Alibaba is poised to achieve 8-10% top-line growth through FY26, supported by rising adoption of Qwen’s models and accelerating demand for AI services.
The company’s improved margins are also noteworthy, as they signal a reversal of the margin declines that had plagued Alibaba for the past decade. As margins expand, Alibaba could see 13-15% earnings growth through FY26, making its current valuation premium of approximately 10x FY2026 earnings relatively attractive compared to the broader Chinese tech sector.
However, risks remain, particularly with the potential reemergence of tariff conflicts between China and the U.S. under the Trump 2.0 administration. While such tensions could impact Alibaba’s logistics and Taobao businesses, the overall effect is expected to be more muted than during the previous tariff wars. This is due in part to shifting trade dynamics and the more targeted nature of any new tariffs, which would primarily affect a limited range of imported goods.
Despite these risks, Alibaba’s AI advancements, particularly the growing adoption of Qwen models, are poised to drive substantial growth for its Cloud division, ensuring the company remains a strong contender in the tech space. Given its evolving business model, solid fundamentals, and strategic positioning, 2025 could prove to be a breakout year for Alibaba, making it a compelling investment opportunity in the coming years.
Alibaba Group Holding Limited (BABA) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 115 hedge fund portfolios held BABA at the end of the third quarter which was 91 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.