To The Moon

A rally with substance

Alibaba has been steadily buying back its own stock for two years, and investors are finally starting to reward it. The shares are up 78% year-to-date, comfortably beating the Hang Seng Index’s 29% rise. This isn’t just hot money chasing momentum. It reflects a genuine alignment between undervalued fundamentals, management conviction, and shifting analyst sentiment. After years of regulatory setbacks and gloomy narratives, the market seems ready to believe in $Alibaba(BABA)$, $BABA-W(09988)$ again.

Alibaba’s rally rises from ashes with conviction and clarity

Buybacks that bite

When management commits billions to buy back stock, it’s not charity—it’s a signal. Alibaba has retired around $25 billion worth of shares since 2022, steadily shrinking its float. That’s about 7% of its current market cap, which is no small gesture in a market still wary of Chinese tech. With fewer shares outstanding, earnings per share are rising faster than net income, creating an underappreciated tailwind. I see this as the quiet engine behind the rally: even if top-line growth stays modest, buybacks mechanically enhance per-share value. The valuation reinforces the point. At just 17 times trailing earnings and 2.4 times sales, $Alibaba(BABA)$ looks cheap compared to global peers. $Amazon.com(AMZN)$ trades at a much higher multiple with slimmer margins, while $Tencent Holding Ltd.(TCEHY)$, closer to home, still commands a premium despite slower e-commerce exposure. With ¥416 billion in cash, these repurchases are sustainable, not cosmetic.

Alibaba still trades at a discount to global tech heavyweights

Analysts catching up

For much of the past three years, analysts were lukewarm at best on Alibaba, keeping price targets flat despite steady profits. That mood is shifting. The consensus one-year target has risen to $164, up from about $135 at the start of 2025. Several banks raised forecasts after June’s results, which showed stabilising e-commerce revenue and a 66% jump in quarterly earnings. What’s more telling, at least two influential analysts upgraded the stock from Neutral to Buy in recent months, citing improved cloud profitability and the sheer scale of the buyback programme. For years, Alibaba’s fundamentals were running ahead of sentiment. Now sentiment is starting to catch up, and that makes the rally more credible.

Cloud with a silver lining

Alibaba Cloud has often been cast as the under-performer, overshadowed by Amazon’s AWS and Microsoft’s Azure. Yet the latest results suggest a quiet turnaround. Operating margins expanded as cost discipline kicked in, and growth was supported by AI demand and contracts with state-owned enterprises. What investors may not fully appreciate is how strategically important Alibaba Cloud is to Beijing’s digital infrastructure push. Domestic clients see it as a homegrown alternative to U.S. hyperscalers—something regulators are unlikely to discourage. Beyond China, the cloud arm has been making inroads in Southeast Asia and the Middle East, signing deals in markets where price-sensitive governments are open to alternatives. If this expansion gains momentum, Alibaba Cloud could evolve from a perceived weak link into the company’s most valuable long-term asset.

Technical momentum gains as market sentiment aligns with Alibaba’s underlying strength

Why competition still matters

Competition has weighed on Alibaba’s valuation, and rightly so. JD.com’s logistics edge, Pinduoduo’s aggressive pricing, and ByteDance’s e-commerce through Douyin have all chipped away at domestic dominance. Yet despite these pressures, Alibaba still generates over a trillion yuan in annual revenue, keeps net margins north of 14%, and serves nearly a billion annual active consumers. The rivals explain why investors stayed sceptical, but they also make the buyback signal stronger: management is essentially saying, 'we know the competition is fierce, but we’re confident the market is mispricing us.'

Valuation hiding in plain sight

At a $350 billion market cap, Alibaba delivered ¥148 billion in net income and ¥185 billion in EBITDA over the past twelve months. The PEG ratio of 1.61 looks fair against earnings growth of 66.7% in the last quarter. Its beta of just 0.10 is another overlooked point. Once seen as a volatile gamble, Alibaba now trades with less correlation to broad market swings than some U.S. utilities. For a stock with this growth profile, that stability is unusual—and to me, undervalued.

Buybacks tighten the spiral, lifting value into sharp focus

Verdict: conviction rewarded

Alibaba is no longer the problem child of Chinese tech. With buybacks boosting EPS, cloud margins improving, and analysts moving from scepticism to cautious optimism, the rally looks grounded in fundamentals rather than speculation. Risks remain—competition is fierce, and free cash flow bears watching—but the tide has clearly turned. For years, the market ignored management’s conviction. Now it’s starting to listen, and I believe this rally has further to run.

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