To The Moon

$Alibaba(BABA)$

Alibaba ($BABA) has staged one of the most remarkable turnarounds in Chinese equity markets. After years of punishing losses driven by regulatory crackdowns, geopolitical headwinds, and investor flight from Chinese tech, Alibaba has more than doubled since co-founder Jack Ma re-emerged publicly in 2023.

What once looked like a broken company weighed down by overregulation is now being reframed as a rejuvenated tech champion. Alibaba has scored victories across AI, cloud computing, and food delivery, restoring confidence internally and externally.

The latest spark came after The Information reported that Alibaba, alongside Baidu, has begun using self-developed AI chips to train large language models, partially replacing Nvidia’s industry-leading GPUs. If true, this would represent a seismic shift — not just for Alibaba’s AI trajectory, but for China’s entire semiconductor ecosystem.

So where does this leave investors? Can Alibaba truly reduce its reliance on U.S. chipmakers? Will AI, cloud, and food delivery sustain momentum? And at $150 per share, does Alibaba remain undervalued, or is it already priced for perfection?

Performance Overview: From Collapse to Comeback

Alibaba’s journey over the past five years has been nothing short of extraordinary.

• 2020–2022: Regulatory crackdowns, the shelving of Ant Group’s IPO, and relentless scrutiny from Beijing drove Alibaba’s stock from over $300 to under $70. Foreign institutional investors fled Chinese equities, citing political risk and uncertain earnings visibility.

• 2023–2024: Jack Ma re-emerged after years of silence, morale lifted inside the company, and Chinese regulators signaled a shift away from heavy-handed tech crackdowns. Alibaba stabilized earnings and announced strategic restructuring to unlock shareholder value.

• 2024–2025: The stock doubled, aided by improved consumer sentiment, a resilient e-commerce recovery, and new momentum in AI, cloud, and food delivery.

At its recent price of $150, Alibaba has doubled from its lows, yet it still trades far below its 2020 highs. For long-term investors, the rebound represents not only a relief rally but also a re-rating of China tech as an investable sector.

The AI Chip Shift: Breaking Away from Nvidia

Perhaps the most intriguing catalyst is Alibaba’s reported use of self-developed AI chips to train large models. Along with Baidu, the company is experimenting with domestically produced hardware — a move spurred by U.S. export restrictions on Nvidia’s A100 and H100 GPUs.

Why This Matters

1. Strategic Independence: Nvidia’s chips remain the global gold standard, but geopolitical restrictions have made them difficult for Chinese firms to acquire. By building in-house, Alibaba takes steps toward technological sovereignty.

2. Cost Efficiency: Over time, designing chips in-house may lower costs and reduce dependence on volatile supply chains.

3. Ecosystem Impact: Success would boost China’s semiconductor supply chain — from foundries like SMIC to design firms like Huawei’s HiSilicon — reinforcing Beijing’s self-sufficiency agenda.

The Reality Check

Matching Nvidia remains a formidable challenge. Nvidia’s CUDA ecosystem and years of R&D advantage make it nearly irreplaceable in the near term. Alibaba’s domestic chips may be “good enough” for certain applications but unlikely to outperform Nvidia’s GPUs at scale. For now, a hybrid approach (using both Nvidia chips where possible and domestic alternatives) is the most realistic scenario.

Still, even partial substitution would represent a watershed moment in Chinese AI development — signaling that Alibaba and Baidu are no longer fully at the mercy of U.S. technology.

Growth Engines: Beyond E-Commerce

Alibaba’s resurgence is not built on AI alone. Its diversified portfolio now stretches across cloud, logistics, and food delivery, providing multiple growth levers.

1. E-Commerce (Taobao & Tmall)

• Remains Alibaba’s core business, contributing over 60% of revenue.

• Domestic retail rebounded as Chinese consumption recovered post-COVID.

• Competition with JD.com and Pinduoduo remains fierce, but Alibaba retains scale advantages.

2. Cloud Computing (Alibaba Cloud)

• Still the largest cloud provider in China with ~30% market share.

• Clients include government agencies, banks, and state-owned enterprises.

• Growth slowed in 2022–2023 but is re-accelerating with AI-driven workloads.

• If AI demand scales, Alibaba Cloud could become the backbone of Chinese enterprise AI adoption.

3. Food Delivery (Ele.me)

• Positioned against Meituan, the sector leader.

• Alibaba has expanded subsidies and logistics integration to regain market share.

• Post-pandemic recovery in consumer dining has fueled double-digit growth.

4. AI & Semiconductors

• Generative AI tools are being integrated into e-commerce search, advertising, and cloud platforms.

• Proprietary chip development adds optionality and reduces reliance on U.S. suppliers.

Together, these engines form a diversified revenue profile, helping Alibaba break out of the “e-commerce only” perception that once dominated investor thinking.

Competitive Landscape: Friends, Rivals, and Frenemies

Alibaba’s resurgence cannot be analyzed in isolation. Its competitors are also evolving rapidly.

• Tencent (WeChat/Cloud): Dominates China’s social ecosystem and mobile payments, with its own AI initiatives.

• Meituan: Strongest in food delivery and local services, representing Alibaba’s biggest challenge in Ele.me.

• JD.com: Competes on logistics-heavy e-commerce, offering faster delivery and premium goods.

• Baidu: Focused on AI search and autonomous driving, but its chip partnership with Alibaba strengthens China’s overall AI resilience.

Alibaba’s edge lies in its scale, ecosystem, and diversification. Unlike JD (logistics-heavy) or Baidu (AI-heavy), Alibaba operates across commerce, cloud, logistics, and now semiconductors — giving it resilience.

Financials and Valuation: Still Cheap or Fairly Priced?

At ~$150 per share, Alibaba trades at a forward P/E of around 18x — still well below U.S. Big Tech peers.

• Apple: ~28x

• Amazon: ~44x

• Microsoft: ~34x

• Alphabet: ~26x

Even compared to Tencent (20x) and Meituan (30x+), Alibaba’s valuation remains undemanding.

Financial Strength

• Cash reserves: Over $70 billion, providing flexibility for buybacks and investments.

• Debt levels: Manageable relative to cash flows.

• Free cash flow: Strong, driven by e-commerce cash generation.

If AI and cloud segments grow at double-digit rates, Alibaba could warrant a valuation closer to 25x earnings, implying upside toward $200 per share.

Risks to Watch

Despite momentum, risks remain significant:

1. Geopolitical Tensions: U.S.-China trade relations and tech export bans remain unpredictable.

2. Regulation: While Beijing has softened its stance, heavy oversight could return.

3. Competition: JD, Meituan, and Tencent remain aggressive.

4. Execution Risk: Developing competitive AI chips is no small feat — Alibaba may stumble.

5. Investor Sentiment: Western funds remain cautious on Chinese equities overall.

Key Investor Questions

1. Can Alibaba and Baidu’s self-developed chips really reduce reliance on Nvidia? Likely only partially, but even partial substitution is strategically important.

2. How might this impact China’s AI and semiconductor ecosystem? It could accelerate self-sufficiency, boost local supply chains, and encourage further R&D investment.

3. Does Alibaba’s momentum across AI, cloud, and food delivery make it a buy at $150? Valuation remains attractive compared to global peers, but execution risks warrant a cautious accumulation strategy.

Verdict: Buy, Hold, or Sell?

Alibaba is no longer the pariah of Chinese tech. With Jack Ma visible again, morale restored, and multiple growth drivers firing, the company looks healthier than it has in years.

• For long-term investors: Every dip toward $130–$140 looks like a buying opportunity.

• For growth investors: Alibaba’s AI/cloud momentum provides a strong case for upside toward $200 if execution holds.

• For cautious investors: Valuation is no longer dirt-cheap, so expect volatility along the way.

Verdict: BUY on dips, with an entry range between $130–$145, targeting $200+ in 18–24 months.

Conclusion: A Reborn Giant

Alibaba’s comeback story is more than just a stock rebound — it’s a narrative of renewal and resilience. From AI chips to food delivery, the company is broadening its horizons and positioning itself at the heart of China’s digital future.

The easy gains from $70 to $150 are behind us, but Alibaba remains cheap relative to its peers, diversified in its growth engines, and strategically aligned with Beijing’s national tech agenda.

For investors, every dip may still be a chance — not just to buy into a company, but into the broader revival of China’s tech sector.