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What is the story about?
Fund managers see potential for Alibaba Group Holding Ltd. to extend the $250 billion stock rally this year that’s made it China’s hottest artificial intelligence trade.
Its US-listed shares have more than doubled as investors buy into Beijing’s vision for self-reliance in the new tech landscape. And this poster child of China’s AI hopes remains more than 65% below its all-time high while major American hyperscaler stocks have peaked in recent months.
With lingering caution over the Chinese economy and cutthroat market competition, short bets on Alibaba spiked last month. But a share price that’s still relatively attractive and low investment levels among global funds are seen leaving room for a prolonged rally.
“We expect this underweight position to change,” said Jian Shi Cortesi, a fund manager at Gam Investment Management who still sees “significant upside” in Alibaba. “The sentiment could also be fueled by the fear of missing out following the strong share price rally.”
The stock is still in a deep hole versus its 2020 peak following a years-long selloff on regulatory crackdowns, internal upheaval and faltering Chinese consumption. Domestic price wars in the food-delivery space that briefly interrupted the recent rebound remain a concern as well.
It’s trading at about 22 times estimated forward earnings in Hong Kong, double its three-year average, though just in line with the Hang Seng Tech Index. And it’s well below Alibaba’s peak level of 29 times, and current multiples for Amazon.com Inc. and Microsoft Corp.
“I don’t think anyone will be calling Alibaba’s valuation egregious anytime soon,” said Richard Clode, who manages Janus Henderson’s $6 billion Global Technology Leaders Fund in London. “That’s likely why many global investors feel more comfortable entering here.”
A key question for investors is how much richer a valuation does Alibaba deserve. AI stock valuations worldwide have been raising some eyebrows once again on concerns that services have yet to go mainstream and earn big revenues.
China AI Leader
One of the major drivers for stocks of late has been how much companies plan to spend on developing their AI businesses: the more the better.
Chief Executive Officer Eddie Wu last week said Alibaba plans to expand its previously projected AI budget of $53 billion over the next three years, though he did not get more specific. Meanwhile, the four major US hyperscalers are expected to spend more than $344 billion this year alone, much of which is going into data centers for AI.
“If Chinese companies can continue to demonstrate strong AI capabilities and sustained earnings growth, global investors will take notice,” said Bush Chu, an investment manager at Aberdeen Investments. Still, “Alibaba’s spending is quite measured. If Alibaba wants to serve global clients, it may need even more.”
China’s e-commerce leader has scored some early success from its AI pivot, with Alibaba Cloud posting a 26% revenue jump in the latest quarter to become the group’s fastest-growing unit. As a domestic AI stock, it has few rivals, according to Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management in Paris.
“Unlike the target-rich environment in the US, in China, Alibaba is one of the few that have world-leading large-language models, capable access to AI chips, proven experience in cloud infrastructure and data-rich core business all at once,” Bao said. Tencent Holdings Ltd. and unlisted ByteDance Co. are the only others, he added.
Key Investment
Following the DeepSeek shock in January that demonstrated China’s capabilities in producing usable AI technology at a reasonable cost, Alibaba has become the face of China AI investment. Its stock has become a favorite of onshore investors, who own 11% of Alibaba shares as of September 30, up from 8.6% a month ago, according to Hong Kong stock exchange data.
Overseas investors have been more cautious in jumping back in. International funds were still underweight Alibaba stock by 1.3% versus its MSCI China Index weighting as of end-August, according to Morgan Stanley data.
Cathie Wood is among foreign fund managers who are turning positive — she reopened positions in Alibaba’s American depositary receipts last month for the first time in four years.
The brisk climb in 2025 is flashing some warning signs, with Alibaba’s 14-day relative strength index indicating the shares are overbought. Short interest in the Hong Kong stock surged to 0.47% of the free float, the highest level since shortly after its listing in 2019, according to S&P Global data.
On the other hand, the sell-side is once again unanimous in recommending Alibaba as a buy.
Options traders have also boosted trading to bet on more gains. The cost of such wagers is near its highest level since 2022 relative to the Hang Seng Tech Index, and the number of contracts outstanding surged to a record before the latest monthly expiration.
Read Also: Putin underscores 'special' relationship with India ahead of visit in December
Its US-listed shares have more than doubled as investors buy into Beijing’s vision for self-reliance in the new tech landscape. And this poster child of China’s AI hopes remains more than 65% below its all-time high while major American hyperscaler stocks have peaked in recent months.
With lingering caution over the Chinese economy and cutthroat market competition, short bets on Alibaba spiked last month. But a share price that’s still relatively attractive and low investment levels among global funds are seen leaving room for a prolonged rally.
“We expect this underweight position to change,” said Jian Shi Cortesi, a fund manager at Gam Investment Management who still sees “significant upside” in Alibaba. “The sentiment could also be fueled by the fear of missing out following the strong share price rally.”
The stock is still in a deep hole versus its 2020 peak following a years-long selloff on regulatory crackdowns, internal upheaval and faltering Chinese consumption. Domestic price wars in the food-delivery space that briefly interrupted the recent rebound remain a concern as well.
It’s trading at about 22 times estimated forward earnings in Hong Kong, double its three-year average, though just in line with the Hang Seng Tech Index. And it’s well below Alibaba’s peak level of 29 times, and current multiples for Amazon.com Inc. and Microsoft Corp.
“I don’t think anyone will be calling Alibaba’s valuation egregious anytime soon,” said Richard Clode, who manages Janus Henderson’s $6 billion Global Technology Leaders Fund in London. “That’s likely why many global investors feel more comfortable entering here.”
A key question for investors is how much richer a valuation does Alibaba deserve. AI stock valuations worldwide have been raising some eyebrows once again on concerns that services have yet to go mainstream and earn big revenues.
China AI Leader
One of the major drivers for stocks of late has been how much companies plan to spend on developing their AI businesses: the more the better.
Chief Executive Officer Eddie Wu last week said Alibaba plans to expand its previously projected AI budget of $53 billion over the next three years, though he did not get more specific. Meanwhile, the four major US hyperscalers are expected to spend more than $344 billion this year alone, much of which is going into data centers for AI.
“If Chinese companies can continue to demonstrate strong AI capabilities and sustained earnings growth, global investors will take notice,” said Bush Chu, an investment manager at Aberdeen Investments. Still, “Alibaba’s spending is quite measured. If Alibaba wants to serve global clients, it may need even more.”
China’s e-commerce leader has scored some early success from its AI pivot, with Alibaba Cloud posting a 26% revenue jump in the latest quarter to become the group’s fastest-growing unit. As a domestic AI stock, it has few rivals, according to Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management in Paris.
“Unlike the target-rich environment in the US, in China, Alibaba is one of the few that have world-leading large-language models, capable access to AI chips, proven experience in cloud infrastructure and data-rich core business all at once,” Bao said. Tencent Holdings Ltd. and unlisted ByteDance Co. are the only others, he added.
Key Investment
Following the DeepSeek shock in January that demonstrated China’s capabilities in producing usable AI technology at a reasonable cost, Alibaba has become the face of China AI investment. Its stock has become a favorite of onshore investors, who own 11% of Alibaba shares as of September 30, up from 8.6% a month ago, according to Hong Kong stock exchange data.
Overseas investors have been more cautious in jumping back in. International funds were still underweight Alibaba stock by 1.3% versus its MSCI China Index weighting as of end-August, according to Morgan Stanley data.
Cathie Wood is among foreign fund managers who are turning positive — she reopened positions in Alibaba’s American depositary receipts last month for the first time in four years.
The brisk climb in 2025 is flashing some warning signs, with Alibaba’s 14-day relative strength index indicating the shares are overbought. Short interest in the Hong Kong stock surged to 0.47% of the free float, the highest level since shortly after its listing in 2019, according to S&P Global data.
On the other hand, the sell-side is once again unanimous in recommending Alibaba as a buy.
Options traders have also boosted trading to bet on more gains. The cost of such wagers is near its highest level since 2022 relative to the Hang Seng Tech Index, and the number of contracts outstanding surged to a record before the latest monthly expiration.
Read Also: Putin underscores 'special' relationship with India ahead of visit in December
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