1 No-Brainer Artificial Intelligence (AI) Stock to Buy With $150 Right Now

Alibaba's AI + Cloud business grew 38% last quarter, with 40% growth from external customers and AI-related revenue posting its 11th straight quarter of triple-digit growth. Management expects AI services annualized recurring revenue to triple to RMB 30 billion in the second half and sees margin expansion from proprietary AI chips, even as the company posted a small operating loss due to AI investment. The article argues the stock is attractive at about $130, trading at 19x forward earnings and 13.5x EV/EBITDA with EPS projected to rise 24% annually over the next three years.

Analysis

The market is likely still underpricing the second-order effect of Alibaba’s AI push: this is not just a cloud revenue story, it is a reset of the company’s operating mix. As AI services rise from a low-margin feature into the core monetization layer, incremental revenue should carry materially better contribution margins than legacy commerce, which means the earnings inflection can outpace consensus even if top-line growth looks only mid-teens.

The most important competitive implication is not for Alibaba alone, but for Chinese AI infrastructure more broadly. A domestic chip stack plus proprietary model deployment reduces dependence on imported acceleration capacity, which can create a localized supply advantage when compute is scarce; that tends to pull enterprise workloads toward the platform with the most reliable capacity, not just the best model. That dynamic could pressure PDD on commerce share over time if Alibaba successfully embeds AI into discovery, search, and merchant tooling, while also creating a self-reinforcing ecosystem for cloud attach rates.

The main risk is timing mismatch: the equity can rerate before the profit bridge is visible, but it can also stall if AI capex keeps losses elevated for another 2-3 quarters. In that window, any deceleration in external cloud growth, regulatory friction in China, or evidence that AI demand is not translating into durable recurring revenue would challenge the multiple expansion case. The setup is therefore a classic “near-term optics / medium-term fundamentals” trade, where the stock can work even if reported earnings remain noisy.

Consensus appears to be treating Alibaba as a mature commerce proxy with an AI call option, but the market may be underestimating how quickly AI can become the primary valuation driver if management keeps converting compute scarcity into pricing power. The more contrarian angle is that the stock may still be cheap even after the rerating because the cloud segment’s margin structure is improving just as the business mix shifts away from lower-quality commerce earnings. If that proves true, today’s valuation is likely discounting only one year of AI upside, not a multi-year platform reset.

Key Decisions for Investors

• Long BABA on a 3-6 month horizon; use pullbacks tied to broad China-tech weakness to build, targeting a rerating toward high-teens/low-20s forward EBITDA multiple if AI revenue mix continues to inflect.
• Pair trade: long BABA / short PDD for 3-6 months. Thesis: Alibaba’s AI-cloud optionality and proprietary compute stack create a higher-quality earnings trajectory, while PDD remains more exposed to price-led commerce growth and margin pressure.
• Buy BABA Jan-2027 call spreads to express the medium-term margin expansion story with defined downside; structure around a 20-30% upside target and avoid paying for a near-term earnings chop.
• For relative AI exposure, prefer BABA over NVDA/INTC on a China-specific basis for the next 6-12 months if the goal is AI monetization rather than semiconductor beta; Alibaba has a clearer path to direct revenue capture from demand growth.
• If BABA fails to show accelerating external cloud growth in the next 2 quarters, cut exposure quickly; the stock’s current appeal depends on the market believing the AI loss phase is temporary, not structural.