Best Stock to Buy Right Now: Alibaba vs. Amazon

Alibaba Group has significantly underperformed Amazon over the last decade, with its stock rising less than 120% versus Amazon's nearly 650%, primarily due to Chinese e-commerce slowdowns and regulatory pressures. While Alibaba is expanding lower-margin overseas operations and its cloud business is growing with AI, analysts project 8% revenue and 12% EPS CAGR through FY28, with the stock trading at 21x next year's earnings. Conversely, Amazon's robust profitability from high-margin AWS and advertising supports its retail and Prime ecosystem, driving analyst forecasts of 11% revenue and 19% EPS CAGR through 2027, though at a higher 30x forward earnings multiple, potentially reflecting baked-in AI hype. The article concludes Alibaba may offer a more compelling investment at its current valuation.

Analysis

Alibaba (BABA) has significantly underperformed Amazon (AMZN) over the past decade, with its stock rising less than 120% versus Amazon's nearly 650%. This underperformance stems from a slowdown in its core Chinese e-commerce due to competition, macro headwinds, and a 2021 antitrust crackdown. Alibaba's business model, reliant on lower-margin e-commerce and unprofitable ventures, contrasts with Amazon's robust, high-margin cloud (AWS) and advertising segments.

To counter domestic pressures, Alibaba is expanding into higher-growth overseas marketplaces and its Cainiao logistics business, though this compresses margins. Its profitable cloud business, leveraging Qwen LLMs, is expanding and could offset some near-term margin pressure. Analysts project an 8% revenue and 12% EPS CAGR for Alibaba from FY25 to FY28, with the stock trading at a reasonable 21 times next year's earnings.

Amazon's profitability is driven by its high-margin AWS cloud platform and growing advertising business, which subsidize its lower-margin retail and Prime ecosystem. Analysts forecast Amazon's revenue and EPS to grow at 11% and 19% CAGR, respectively, from 2024 to 2027, though it trades at a higher 30 times next year's earnings, potentially reflecting significant AI hype.

The article suggests Alibaba may present a more compelling investment at its current 21x forward earnings valuation, implying potential for outperformance if it exceeds conservative analyst estimates, contrasting with Amazon where rosier forecasts might be harder to surpass.

Key Decisions for Investors

• Consider Alibaba (BABA) for potential value given its 21x forward earnings multiple and analyst expectations for 8% revenue and 12% EPS CAGR through FY28, especially if trade tensions ease.
• Evaluate Amazon (AMZN) with caution regarding its 30x forward earnings, as its higher valuation may already incorporate significant AI growth expectations.
• Monitor Alibaba's execution on strengthening core e-commerce, narrowing overseas losses, and cloud expansion, as these are critical for achieving projected growth and potential re-rating.