3. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Investors: 91
Jim Cramer reports that Susquehanna has reduced its price target for Alibaba Group Holding Limited (NYSE:BABA) but still holds a positive outlook on the stock. Even with a sluggish Chinese economy, analysts highlighted Alibaba Group Holding Limited (NYSE:BABA)’s advancements in artificial intelligence and pointed out that the company’s latest earnings report showed profits exceeding expectations.
“Susquehanna lowered its price target on Alibaba to $130 a share from $135, but maintained its positive rating on the Chinese e-commerce and cloud giant’s stock. Despite a sluggish Chinese economy, analysts touted Alibaba’s progress on AI initiatives and noted its most recent earnings report showed better-than-expect profits.”
Alibaba Group Holding Limited (NYSE:BABA) is set for substantial growth in the future, thanks to its strong position in China’s e-commerce sector with platforms like Taobao and Tmall, which are expanding rapidly. Alibaba Group Holding Limited (NYSE:BABA)’s cloud computing division, Alibaba Cloud, is a major player in Asia and is quickly increasing its global market share due to rising demand for cloud services. Alibaba Group Holding Limited (NYSE:BABA)’s significant investments in technology and innovation—such as artificial intelligence, big data, and logistics—enhance its competitive advantage.
Alibaba Group Holding Limited (NYSE:BABA)’s efforts to enter new markets and diversify into areas like digital media, entertainment, and international e-commerce provide additional revenue opportunities and growth potential. With a large consumer base in China and a growing international presence, Alibaba Group Holding Limited (NYSE:BABA)’s broad range of services and platforms sets the stage for ongoing growth.
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)
