NYSE:BABA Emerges as AI Underdog With $195 Target as Cloud Revenues Jump 18%
Alibaba (NYSE:BABA) is undergoing a deep transformation that Wall Street has yet to fully price in. While the market remains distracted by geopolitical overhangs and legacy e-commerce perceptions, the company's actual pivot toward cloud computing, AI monetization, and international commerce is accelerating at a pace that justifies a re-rating. Shares closed at $115.03, trading at just 11.6x forward P/E, massively discounted versus Amazon (33x) and Microsoft (34.5x). The question is no longer whether Alibaba is cheap — it’s whether the market can catch up before the value gap closes.
Cloud Intelligence Growth Outpaces AWS and Narrows Gap With Microsoft
Alibaba Cloud’s revenue soared 18% year-over-year in Q4 2025, delivering RMB30.1 billion ($4.2B), up from 13% in Q3 and marking a full reversal from earlier softness in the China market. This pace is higher than Amazon Web Services (16.89%) and just under Microsoft’s 20.8%. While it still trails the U.S. giants in total cloud share globally, Alibaba commands a 36% market share in China, leading Tencent and Huawei. That domestic leadership, coupled with aggressive expansion into Southeast Asia and the Middle East, gives Alibaba the regional dominance it needs to grow internationally without competing head-on with U.S. hyperscalers.
Qwen AI Engine Becomes China’s Android Moment
The Qwen AI model — now in its third generation — has been downloaded over 300 million times and has spawned more than 100,000 derivative models, making it the largest open-source model family worldwide. Over 290,000 companies are already building with Qwen, and this open ecosystem mirrors Google’s Android strategy: give away the base, monetize the cloud. This creates a powerful flywheel — the more Qwen grows, the more sticky demand flows into Alibaba Cloud. CEO Eddie Wu emphasized that adoption is accelerating from internal tools to customer-facing products, especially in manufacturing and agriculture, where AI use cases are becoming mainstream in China.
AI Monetization Powers EBITA Surge — But Capex Signals Long Game
Alibaba’s Cloud Intelligence Group reported 69% YoY EBITA growth, reaching $333 million in Q4, highlighting operating leverage in AI workloads. However, margins dipped sequentially due to heavy investment in infrastructure and product development. CFO Toby Xu made it clear: the company is intentionally front-loading AI capex to meet surging demand, echoing AWS and Azure’s early expansion phases. The strategy is to absorb short-term margin compression in exchange for long-term ecosystem dominance. Alibaba plans to spend $53 billion on AI and cloud infrastructure over the next three years — more than it spent on both combined over the past decade.
E-Commerce Still Dominant — But International is the Real Growth Engine
While domestic commerce (Taobao and Tmall) remains Alibaba’s cash cow, it grew just 8.75% YoY, reflecting China’s maturing consumer base. In contrast, international commerce (AliExpress, Lazada) grew 22%, driven by localization efforts and rising demand from emerging markets. Cross-border sales rose 29% in Q4 — right before new U.S. tariffs on sub-$800 imports took effect. The international unit is starting to mirror Amazon’s early years abroad: under-penetrated markets, rising logistics investments, and monetizable customer data. Given that China accounts for 46% of Alibaba's revenue, diversification outside the mainland is increasingly critical for de-risking future growth.
Valuation Disconnect Points to $195+ Fair Value
At $115.03, BABA trades at a P/S ratio of just 2x, compared to the peer average of 8.38x. Cloud revenue alone — at a $16.6B run rate — justifies a higher multiple. Applying a 6.2x EV/Sales multiple, below Microsoft’s 12.4x, gives the Cloud Intelligence Group a valuation of $139.5 billion, or $59.5/share. Meanwhile, Alibaba’s core Taobao/Tmall retail segment produced $5.7B EBITDA in Q4, projecting to $23B annually. Assuming a conservative 15% growth and a 14x EV/EBITDA, that segment alone is worth $371B, or $163/share.
Add in $50.5 billion in net cash, and the full sum-of-parts (before discount) reaches $244.9/share. Even applying a 20% “China discount” yields a conservative $195 price target — a 70% upside from current levels.
Insider Transactions, Liquidity, and Balance Sheet Strength
Liquidity is not a concern. With over $50B in cash and net cash of $24B, Alibaba can comfortably fund its AI and cloud ambitions without diluting shareholders. You can monitor insider buying and executive holdings directly here: BABA Insider Transactions. Historically, insider activity has aligned with long-term inflection points — any signal of management increasing exposure should be taken seriously given current undervaluation.
PEG Ratio Screams Bargain as Market Ignores Growth Curve
Alibaba’s forward PEG ratio is just 0.72, 55% below the sector median of 1.6. Investors are paying far less per unit of growth than they are for U.S. tech stocks — a result of outdated perceptions and geopolitical overhangs. But as China stabilizes and AI becomes a national priority — with government and central bank backing — regulatory risk may not be the headwind it once was. In fact, Alibaba’s AI focus aligns with policy priorities, not against them.
Decision: Strong Buy — Growth and Valuation Misaligned
NYSE:BABA is no longer just an e-commerce giant. It is a misunderstood AI and cloud powerhouse hiding in plain sight. With AI revenue growing triple digits for 7 straight quarters, cloud outperforming AWS, and a PEG under 0.75, the disconnect is undeniable. Based on both sum-of-parts valuation and comparative multiples, a $195 price target is not only realistic — it’s conservative. At $115, the upside is roughly 70%, with improving fundamentals and a market still clinging to an outdated narrative. This is a Strong Buy — the market’s mispricing won’t last forever.
Link to real-time chart: NYSE:BABA Chart
