Alibaba: The sleeping giant awakens

Key points:

1. Alibaba's stock surge and AI breakthroughs: Alibaba's stock has surged 50% from its January lows, driven by AI advancements and a strategic partnership with Apple. The company's Qwen AI model has outperformed competitors like OpenAI's ChatGPT 4o and Meta's LLaMA, positioning Alibaba as a strong contender in the global AI race.
2. Strategic partnership with Apple: Alibaba's AI credibility received a significant boost when Apple announced it would use Alibaba's models for iPhone AI services in China. This partnership could lead to increased usage and revenue for Alibaba's cloud division, solidifying its status as a key AI infrastructure provider in the region.
3. Stabilizing core businesses but with risks: While Alibaba's core e-commerce business is stabilizing and cloud revenue is expected to grow, several risks remain. These include potential tariff threats and geopolitical tensions, challenges in AI monetization, lagging global peers in cloud business, fierce domestic competition, the possibility of Apple's AI rollout failing, and China's economic uncertainty.

Alibaba’s stock (BABA) has surged more than 46% from its January lows, leaving domestic rivals, broader Chinese indices, and even U.S. tech giants in the dust. While Wall Street remains fixated on the Magnificent 7 and is now shifting attention towards finding companies that can deliver on AI monetization, Alibaba has quietly staged a remarkable comeback. The Chinese e-commerce giant is powered by AI breakthroughs, a strategic partnership with Apple, and a still-undervalued stock.

From crackdowns to comeback

Alibaba’s resurgence is a stark contrast to its turbulent recent past.

In late 2020, co-founder Jack Ma’s public criticism of regulators triggered a crackdown that derailed Ant Group’s IPO and cast a long shadow over the entire Chinese tech sector. Over the next two years, Alibaba was hit by regulatory scrutiny, pandemic disruptions, and slowing consumer demand. The stock tumbled more than 75% from its peak.

Meanwhile, competitors like Pinduoduo and JD.com chipped away at its e-commerce dominance. The company’s internal restructuring into six business units, while strategically sound, added to the uncertainty.

But 2025 tells a different story. Beijing has pivoted to pro-growth policies, Alibaba’s core commerce business is stabilizing, and its AI investments are paying off. The result is a stock that investors can’t ignore anymore. Let’s take an account of what’s driving the resurgence of this Chinese tech giant.

Alibaba’s Qwen AI model is cheaper and more efficient than DeepSeek

The global AI race isn’t just a Western story. While Nvidia, Meta, and OpenAI grab headlines, Alibaba’s Qwen 2.5 Max model has quietly emerged as a top contender. Recent benchmark tests show Qwen outperforming OpenAI’s ChatGPT 4o, Meta’s LLaMA and DeepSeek’s-V3, two of the highly-regarded models in the AI landscape.

With government support for domestic AI development and Alibaba’s established cloud infrastructure, the company is well-positioned to dominate this space. If DeepSeek continues to lose steam, Alibaba could enjoy first-mover advantages in critical sectors like logistics, retail, and manufacturing.

Apple AI deal could be a strategic breakthrough

Alibaba’s AI ambitions received a massive credibility boost when Apple announced it would use Alibaba’s models for iPhone AI services in China.

This partnership is more than a headline-grabber. With iPhones commanding significant market share in China, Alibaba’s cloud services will power core AI functionalities for millions of users. As Chinese consumers adopt more AI-driven services, Alibaba’s cloud division could see a meaningful uptick in usage and revenue.

If Apple’s AI launch gains traction, this partnership might solidify Alibaba’s status as the go-to provider for AI infrastructure in the region.

Tangible earnings growth on the horizon

While AI is the buzzword, Alibaba’s core e-commerce business - its profit engine - is stabilizing. Recent reports suggest improved consumer sentiment and increased online spending, particularly on Taobao and Tmall.

Cloud revenue growth, long a disappointment, could get a boost from its Apple partnership and enterprise AI demand. Analysts expect 24% EPS growth in 2025 and a slowing capex spend.

Tariff headwinds could remain manageable

Tariff uncertainties demand caution on China. While the recent 10% tariff and the rollback of the “de minimis” duty-free exemption could hurt low-cost e-commerce imports, Alibaba’s geographically diverse footprint may help it mitigate the impact. Unlike PDD, which relies heavily on U.S. shipments through Temu, Alibaba has built a more global supply network.

This international diversification could insulate Alibaba’s overseas operations and allow it to maintain its price advantage in key markets. If tariffs escalate, investors may increasingly favor Alibaba over more U.S.-dependent rivals.

Alibaba remains a relative bargain

Even after its recent surge, BABA trades at just 12x forward earnings, below its five-year average of 14.6x and significantly cheaper than U.S. tech peers.

For context, Amazon trades at over 30x earnings, despite both companies operating similarly scaled e-commerce and cloud businesses. With earnings growth finally returning, Alibaba’s valuation looks increasingly attractive for investors seeking a discounted tech play with AI upside.

Upcoming catalysts: What’s next for Alibaba?

• Apple’s AI Launch in China (Expected Q1/Q2 2025): Success here could significantly boost Alibaba’s cloud utilization. If consumers embrace AI-powered iPhone features like smart assistants and real-time translations, Alibaba will benefit directly.
• Earnings Report (Expected Late February/Early March): Investors will be watching for growth in AI services and potential improvements in cloud profitability. Analysts expect a moderate rebound in core commerce revenue, thanks to better consumer sentiment and holiday season performance.
• China’s Policy Stimulus (Ongoing): Beijing has pledged more stimulus in 2025, including measures to boost consumer spending and support tech innovation. Any signs of follow-through could lift Alibaba’s growth trajectory.

Risks to watch

Despite the bullish tailwinds, risks remain:

• Tariff Threats and Geopolitical Tensions: U.S.-China relations remain fraught, with the potential for new tariffs on Chinese tech exports. Such measures could hurt Alibaba’s cross-border business and global ambitions.
• AI Monetization Challenges: While Alibaba’s AI models outperform in tests, domestic businesses have been slow to adopt paid AI services. Convincing cost-conscious Chinese enterprises to pay for advanced tools will take time.
• Cloud Business Lagging Global Peers: Alibaba Cloud leads in China but trails AWS, Azure, and Google Cloud globally. Without international expansion, the division’s growth prospects remain limited.
• Fierce Domestic Competition: Baidu’s Ernie chatbot and ByteDance’s AI investments could erode Alibaba’s lead. In the tech landscape, early gains cannot guarantee long-term dominance.
• Apple’s AI Gamble Could Flop: If Apple’s AI rollout fails to resonate with Chinese consumers, Alibaba’s cloud partnership may yield limited gains.
• China’s Economic Uncertainty: While policymakers have pledged growth-friendly reforms, consumer confidence remains fragile. A prolonged economic slowdown could cap Alibaba’s earnings recovery.