Is Alibaba (BABA) Still A Smart Long-Term Investment?

Peterson Investment Fund I reported a 10.1% decline in Q2 2025, underperforming the S&P 500's 10.9% gain, despite maintaining a strong 13.6% year-to-date return against the S&P's 6.2% and a 10.9% annualized long-term record. The fund's investor letter emphasized its conviction in Alibaba (BABA), noting that market sentiment has created a dislocation between its intrinsic value and share price, leading to volatility and mark-to-market swings from their options exposure, even as BABA rallied 34.44% last month and is expected to generate significant shareholder returns.

Analysis

Peterson Investment Fund I reported a significant second-quarter 2025 decline of 10.1%, starkly underperforming the S&P 500's 10.9% gain. However, the fund maintains a strong year-to-date outperformance, with a 13.6% return versus the index's 6.2%, and highlights a long-term annualized return of 10.9% since inception. The fund's investor letter attributes its conviction to a value-based strategy, exemplified by its bullish stance on Alibaba Group Holding Limited (BABA). Peterson asserts that negative market sentiment toward Chinese equities has created a "significant dislocation" between Alibaba's intrinsic value and its share price, viewing it as "significantly undervalued." This commentary appears to reference a period when the stock fell below $100, which contrasts with its recent performance, including a 34.44% rally in the past month to a closing price of $164.25. The fund's exposure is through multi-year option contracts, which amplifies volatility and leads to material mark-to-market swings. Despite this, Peterson's forward-looking thesis is that Alibaba's fundamental capacity to generate and return substantial cash to shareholders will ultimately drive the share price higher, dismissing recent price weakness as temporary.

Key Decisions for Investors

• Investors should weigh Peterson's bullish, value-based thesis on Alibaba against the stock's recent powerful rally of 34.44% in the past month, which may have already closed some of the valuation gap the fund initially identified.
• Note that Peterson's position is held via multi-year option contracts, a strategy that implies high conviction but also exposes the portfolio to significant mark-to-market volatility, a risk factor for any investor considering a similar position.
• The core of Peterson's argument rests on future capital returns, so investors should closely monitor Alibaba's upcoming financial reports for evidence of strong free cash flow generation and shareholder return initiatives like buybacks or dividends.
• The fund's sharp Q2 underperformance of over 21 percentage points versus the S&P 500 serves as a reminder of the tracking error and volatility inherent in a concentrated, high-conviction investment strategy.