Alibaba: Significantly Mispriced, This Cloud And AI Powerhouse Is A Buy

An analyst argues that Alibaba is undervalued, trading at a forward P/E 22% below its sector median despite delivering 55% returns. Key growth drivers include an 18% increase in cloud revenue in Q4 2025 and 22% growth in international commerce, although domestic e-commerce growth is slower; the analyst acknowledges risks from U.S. tariffs and regulatory scrutiny but maintains a Buy rating with a $212 price target by 2028, citing strong liquidity and discounted valuation.

Analysis

Alibaba Group Holding Limited (BABA) is presented as undervalued, trading at a forward Price-to-Earnings ratio 22% below its sector median, despite achieving over 55% returns in the past year, significantly outperforming the S&P 500. Key growth catalysts include its cloud division, which reported an 18% revenue increase in Q4 2025, a growth rate that outpaces Amazon and nearly matches Microsoft, supported by a planned $53 billion investment in AI and cloud infrastructure. International commerce also demonstrates robust expansion with 22% revenue growth. While domestic e-commerce remains the dominant revenue source, its growth is comparatively slower. The analysis acknowledges material risks, specifically U.S. tariffs and ongoing regulatory scrutiny. However, Alibaba's strong liquidity position and discounted valuation underpin the analyst's "Buy" rating and a $212 price target by 2028.

Key Decisions for Investors

• Investors could consider Alibaba's current discounted valuation relative to its sector and its strong growth in cloud and international segments as a potential investment opportunity.
• It is crucial to actively monitor developments concerning U.S. tariffs and Chinese regulatory scrutiny, as these represent key risks that could materially impact the investment thesis and stock performance.
• The $212 price target by 2028 suggests significant long-term upside potential, but achieving this target will depend on sustained execution in growth areas and a relatively stable geopolitical and regulatory environment.