To The Moon

Alibaba (NYSE: BABA) has been on an impressive rally, closing at $125.79, just shy of its 52-week high of $129.02 and well above its 52-week low of $68.36.

Alibaba (BABA)

The stock has more than doubled from its 2023 lows, driven by improving investor sentiment, China’s economic recovery, and Alibaba’s AI advancements. However, with earnings around the corner, investors are now faced with a critical decision:

• Will Alibaba’s earnings fuel another surge?

• Or will the stock pull back as investors take profits?

Let’s break it down.

Alibaba’s AI Push: A Competitive Edge?

A key catalyst for Alibaba’s recent momentum is its progress in artificial intelligence (AI). In February, a blind test ranking for large language models (LLMs) placed Alibaba’s Tongyi Qianwen 2.5 Max at the top among Chinese models for non-reasoning tasks.

This achievement is significant because:

1. AI is a major growth driver – Cloud computing and AI-related services are becoming central to Alibaba’s future.

2. China’s AI race is heating up – Alibaba competes with Tencent, Baidu, and global giants like OpenAI and Google.

3. Potential monetization opportunities – AI-powered services could boost Alibaba Cloud and enterprise software offerings.

While Alibaba’s AI leadership is promising, it’s still early days. Investors should watch for management’s commentary on AI adoption and monetization during the earnings call.

Valuation: Is Alibaba Too Expensive?

Alibaba’s P/E ratio stands at 54x, which is within its historical range but still relatively high. Let’s consider:

• The stock is not cheap compared to its past lows.

• Earnings growth has not yet caught up with the stock price.

• The Chinese economy is recovering, but consumer spending remains uncertain.

This means that while Alibaba may have long-term upside, current valuations leave little margin for error. If earnings disappoint, a sharp pullback is possible.

Q4 Earnings: A Make-or-Break Moment

What analysts expect:

• Revenue Growth: Modest growth due to China’s economic reopening and improved e-commerce activity.

• Net Profit: Adjusted net profit for Q4 is expected to be flat compared to the previous year.

Possible bullish scenarios:

Strong cloud and AI revenue growth.

Positive guidance on consumer spending in China.

Share buybacks or other shareholder-friendly policies.

Possible bearish scenarios:

Weak e-commerce or advertising revenue.

Disappointing cloud segment growth.

Cautious forward guidance or macroeconomic concerns.

If the earnings exceed expectations, Alibaba could break out above $129 and extend its rally. However, if results disappoint, profit-taking could lead to a pullback.

Why I’m Not Buying Right Now?

While I believe Alibaba is a great company, I won’t buy at this level for several reasons:

1. Near 52-Week High – Not a Great Entry Point

The stock is trading near its highest level in the past year. Buying at highs increases risk, especially before a major event like earnings.

2. Earnings Uncertainty – Could Go Either Way

• If earnings beat expectations, the stock may continue climbing.

• If earnings miss, Alibaba could drop sharply.

• Even a neutral report could trigger a “sell-the-news” reaction.

3. Better Opportunities Will Come

Investing is about buying great companies at great prices. Even if Alibaba rallies after earnings, there will always be future pullbacks or other undervalued stocks to consider.

Final Thoughts: Alibaba’s Future Looks Bright, but Timing Matters

Alibaba remains a dominant player in e-commerce, cloud computing, and AI, with strong long-term potential. However, valuation, earnings uncertainty, and market sentiment make me hesitant to buy at this level.

• If Alibaba dips post-earnings, I might reconsider.

• If it surges higher, I’m okay missing out—there will be other opportunities.

Patience is key in investing. Chasing a stock near its highs, especially before earnings, is often a risky move. I’d rather wait for a better entry point.