BABA undervalued; cloud gives high upside.

As the largest gross merchandise producer by volume, BABA competes in a highly regulated Chinese market. We like BABA’s cloud computing case the most; we believe the high investment into AI computing power gives the stock a high upside; the company has an average analyst price target of ~$190, compared to the current price of around $112, nearly 65% upside. On pure intrinsic and SOTP valuation metrics, the stock looks absurdly cheap, along with numerous other Chinese equities.

The company trades at a 18x P/E ratio, down from its highs of the mid twenties to thirties it saw during 2020-2023. Alibaba cloud revenue grew 36% YoY in the most recent quarter, with AI products contributing 30% of external cloud sales. With the emergence of open source AI models, such as Deepseek, and now Kimi (Moonshot AI), we believe that the demand in China for cloud computing is growing, and BABA is positioned perfectly to reap the benefits of that demand.

The company has also been affected by numerous headwinds. The company saw disastrous March 2026 earnings results, with Adjusted EBITA fell 84%, operating income turning negative, and EPS collapsing to $0.09. However, this was part of a deliberate investment phase of the company; one we believe creates not only a discounted entry point into the equity, but supports the company's long-term intrinsic value and competitive advantage in a saturated market. AI and cloud service CapEx are making investors wary, as it's the golden question to whether the investments will pay off, or if China can even find the compute power given the restrictions of Nvidia chips on trade to China. We believe the strong cloud growth the company has already seen will continue into the future as the capabilities of Chinese compute to grow. We believe that restricting trade and compute power to China has done little to stop the advancement of Chinese technology; as illustrated with Deepseek AI and Moonshot AI. Restrictions to hardware are also ebbing, as Chinese DRAM manufacturing company CXMT recent debut on Shanghai markets shows the ability to finance itself through equity markets.

Overall, we see this stock as significantly undervalued, with its intrinsic value well above the market price due to market speculation and short-term headwinds. We like this stock because of its wide margin of safety and incredibly high upside.