Alibaba Soars on AI Spending Hike. Why the Stock Can Climb Even Higher.

Alibaba investors have been through the wringer in recent years. (Dreamstime)

Key Points

About This Summary

• Alibaba’s American depositary receipts advanced 9% in U.S. premarket trading following an AI business announcement.
• The company plans to open new data centers abroad, increase AI spending, and unveiled Qwen3-Max, an AI language model.
• Alibaba’s stock has almost doubled this year, gaining more than a third in the last month, reaching levels not seen since 2021.

Alibaba stock is in the midst of its best year in almost a decade, and there is reason to believe the Chinese tech giant can keep the rally going beyond Wednesday’s jump from its latest artificial intelligence boost.

Alibaba’s American depositary receipts, or ADRs—essentially the stock listed in New York—advanced 10% in Wednesday trading following a sweeping announcement related to its AI business.

Alibaba will open new data centers abroad and hike spending on AI, the company said, as it also unveiled Qwen3-Max, its largest-ever AI language model that has more than 1 trillion parameters. Alibaba CEO Eddie Wu said Wednesday Nvidia will join with Alibaba to integrate its tools for physical AI such as robots and self-driving cars.

Created with Highcharts 9.0.1Alibaba Stock ticker: BABASource: FactSetNote: American depositary receiptsAs of Sept. 19

Created with Highcharts 9.0.12016'20'25050100150200250300$350

The news, and stock move, is the latest reason for cheer among shareholders in Alibaba, the Chinese tech giant whose businesses include online retail, cloud computing, and artificial intelligence.

The company’s investors have been through the wringer in recent years. The stock price peaked above $300 in late 2020 and then lost more than 75% of its value in two years, as a Chinese regulatory crackdown was compounded by growth fears in the world’s second-largest economy.

Alibaba stock has spent much of the period since 2022 wallowing between $70 and $120. The stock finished above $163 on Tuesday—levels not seen since the drawdown days of 2021. Shares have almost doubled this year, with the stock gaining more than a third in the last month alone.

Alibaba is on track to notch its longest weekly winning streak—eight consecutive weeks—since early 2020, and at this pace will see its best calendar year since 2017.

Wall Street likes the stock: Alibaba has an average rating of Buy among more than 50 analysts surveyed by FactSet, with not a single Sell rating. Yet the current consensus among brokers is that the price is about right, since the average price target among analysts is below $167. The Wednesday premarket move had the stock on track to open around $178.

That could soon change. Exchanges with analysts and a review of recent research suggest there may be both fundamental and sentimental factors that could boost Alibaba. If Wall Street comes around to this view, there could be re-ratings and new, higher target prices to push the stock higher—and the latest, surprise AI news is only the latest evidence.

First, the company’s core online retail business. Alibaba management met with the team at Nomura earlier this month, with analysts at the group coming away with a positive view on the company’s e-commerce operations.

The company indicated to Nomura that investors will see that the current quarter was another one of heavy spending. This is “due to upfront investment needed to build up delivery force to meet surging orders and invest in branding for the revamped quick commerce brand,” analyst Jialong Shi wrote.

However, “as volumes have reached a sizable scale already, Alibaba noted that it is ready to narrow the loss per order by 50% by this October through a slew of efforts,” Shi detailed. These include optimizing operating efficiency and reducing marketing spend.

Nomura currently rates Alibaba at Buy with a $170 price target.

Artificial intelligence also holds promise, and not just from the new AI model unveiled on Wednesday. Chelsey Tam, an analyst at Morningstar, sees additional demand coming from sectors that are currently underappreciated.

“Additional demand is emerging from the education and healthcare sectors, as well as from companies developing tools that leverage Alibaba’s open-source model for artificial intelligence training,” Tam wrote in a note. “We believe the shares are undervalued, as the market has yet to fully reflect Alibaba’s AI cloud potential and the current management’s ability to enhance competitiveness.”

Morningstar rates Alibaba at Hold, albeit with a higher-than-consensus price target of $179.

Management is another important consideration. Bloomberg reported last week, citing company sources, that Jack Ma has returned to Alibaba in some informal but important leadership capacity.

Ma is Alibaba’s key founder and its former executive chairman until 2019. He is also one of China’s most high-profile tech leaders, whose disappearance from public view amid Beijing’s crackdown from late 2020 onward was seen as hugely symbolic.

Ma may have been crucial in pivoting Alibaba toward AI and spending heavily to fend off retail rivals like JD.com , according to Bloomberg, and his visibility may also signal that tech is back in favor with leadership in Beijing.

“Reports of Jack Ma taking a more informal leadership role should be seen more as a sentiment factor than a clear fundamental driver,” said Bo Pei, an analyst at U.S. Tiger Securities. “His presence could help restore confidence among employees and investors at a time when Alibaba is navigating restructuring and heightened competition.”

U.S. Tiger Securities rates Alibaba at Buy with a $145 target price.

But the stock is not without risks, of course. For one, the company faces the same existential regulatory threats that have burdened Chinese tech for years.

“China might impose more antimonopoly regulations on big internet platforms, including Alibaba, which might have a negative impact on its revenue/profit outlook,” the analyst Pei wrote, summarizing risk factors.

Pei added that the company is also vulnerable to both U.S. disclosure rules for Chinese corporates, as well as potential Chinese restrictions on companies in possession of sensitive data.

Alibaba’s valuation, at 18.3 times future estimated earnings, is in line with its peers but considerably below the S&P 500 information technology sector ’s average of 31 times, according to FactSet data. For a high-growth stock, it doesn’t seem overly stretched.

It’s just one more reason to believe Alibaba stock can stay hot for a while yet.

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