Baba Stock Rally Hits 90%,  Why It’s Still Undervalued

We’ve seen Alibaba’s stock skyrocket nearly 90% year-to-date. Many would say that’s already more than most tech names can deliver. Yet when we dig deeper, a surprising story emerges: despite the big gains, Alibaba may still be priced below what its future could be worth. Why does that matter to us as investors? Because we believe there is more to this rally than just hype. We’ve got strong signals: cloud revenue growing by about 26% year-over-year, AI product lines showing triple-digit growth, and Alibaba’s international commerce pushing ahead. At the same time, some market fears and comparisons with bigger peers have kept valuations cautious.

We’ll show how the recent surge reflects real improvements, and yet, how Alibaba still looks undervalued. We’ll explore its strengths, what could drive further upside, and what risks we can’t ignore. By the end, we hope you’ll see why this may be more than just a 90% rally; it might also be an opportunity.

The Recent 90% Rally: What Drove It?

• Strong AI & Cloud momentum: Alibaba is investing heavily in its Cloud Intelligence Group. In Q2 2025, cloud revenue grew by ~26% year-over-year.
• Investment in infrastructure: The company plans to invest about $52–53 billion over the next three years for cloud and AI infrastructure.
• Convertible bond offering: Alibaba raised $3.2 billion through a zero-coupon convertible bond to fund cloud growth and international operations.
• Regulatory easing & tech nationalism: China is pushing for technology self-reliance. Example: a major data centre project in Qinghai using domestic chips, many from Alibaba’s T-Head.
• Market response: Despite some misses in earnings or revenue expectations, investors are focusing on growth potential, especially in AI. On days ev, en when the headline numbers lagged, BabBaba’sock has jumped.

Alibaba’s Core Strengths

• Cloud & AI dominance: Alibaba Cloud is growing fast. Its AI-related products are showing triple-digit growth in recent quarters. It’s also gaining market share domestically, with strong compliance and infrastructure ties.
• International commerce: Baba’s overseas platforms (AliExpress, Lazada, Trendyol, Daraz) are growing much faster than its domestic e-commerce in some cases. For example, the International Digital Commerce Group saw ~29% revenue growth while core Taobao/Tmall grew only ~3% in one fiscal year.
• E-commerce plus logistics & services: The e-commerce business is maturing, but Alibaba also operates strong logistics via Cainiao and is building “instant commerce” to deliver fast locally. Those services offer new paths to revenue.
• Share buybacks and capital discipline: Alibaba bought back ~5% of its shares for about $11.9 billion in fiscal 2025. That signals management sees value and wants to return capital or reduce share dilution.

Valuation Metrics: Why It’s Still Cheap

• P/E Ratio below historical average: Baba trades at about 17.3× P/E as of Sept 2025, well below its 10-year historical average of ~31-32×. That’s a 40-50% discount vs its own past.
• PEG Ratio looks very low: Its PEG (Price/Earnings to Growth) is very small (≈0.16 in one report), implying the stock growth expectations are high relative to its current price.
• Enterprise value vs sales / EBITDA: Baba’s enterprise value (EV) is relatively low vs its sales and earnings. For example, in fiscal 2025, revenue & adjusted EBITDA rose modestly bu,t valuation multiples remain low (e.g. ~2 × sales, ~8× adjusted EBITDA in some estimates).
• Discounted Cash Flow (DCF) analysis: Some analysts’ DCF models place intrinsic value higher than the current share price. One model suggests Baba is undervalued by ~16-17% based on projected free cash flows.

Growth Catalysts Ahead

• AI goods & services: We expect Alibaba to further scale its AI models (e.g., Qw, en family), offering enterprise AI tools and cloud services. Demand across manufacturing, finance, and media is rising.
• International expansion: Growth in Southeast Asia, South Asia, Turkey, etc. These markets still have high growth potential. Alibaba can leverage its e-commerce and logistics strengths there.
• Improved regulatory environment: China seems to be easing some restrictions for tech firms, especially in AI, domestic chip, and cloud infrastructure investment. Projects using domestic chips, like at its T-Head unit, illustrate policy alignment.
• More sharebuybackspitalturnss: With free cash flow rising, and management having shown willingness to repurchase shares, we could see continued capital return. That helps reduce supply and boost per-share value.

Risks That Keep Investors Cautious

• Regulatory risk remains: China-US relations, tech regulation, and expanded or restricted restrictions on semiconductors or advanced chips could hurt Alibaba, especially in its AI and cloud businesses.
• Competition: JD.com, PDD Holdings, and other e-commerce or cloud rivals are aggressive. Also gl, global cloud players like AWS/Google/Azure pose challenges for international expansion.
• Margin pressures: Investments in instant commerce, logistics, AI, and infrastructure tend to cost a lot, often reducing short-term profitability and increasing the risk of fixed costs. Some reported misses in revenue vs expectations.
• Macroeconomic & geopolitical headwinds: Slower global growth, trade tensions, inflation, U.S. pressure on Chinese firms, all could affect performance. Also cu, currency risk and foreign investor sentiment swings.

Why the Undervaluation Matters

• If we believe in Alibaba’s growth in cloud, AI, and international e-commerce, the current price may not reflect its full potential.
• Investors who act when the stock is undervalued tend to get better long-term returns. Baba may be one of those cases.
• Value is not just a cheap price; it’s cheap relative to growth and risk. When the market’s worries fade, the value gap often closes.

Conclusion

Baba stock has delivered a strong rally, almost 90% year-to-date. But the rally seems grounded in real structural change: surging cloud and AI revenue, international scale, strong investment, and smart strategy. Its valuation metrics, P/E, PEG, DCF, and all suggest there’s still room to grow. Yes, risks are real: regulation, competition, margin drag. Yet we think those risks are at least partially priced in. If bullish trends continue, Baba may shine even brighter and remain undervalued for some time yet.

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This content is for informational purposes only and is not financial advice. Always conduct your research.