To The Moon

$Alibaba(BABA)$

Alibaba Group (NYSE: BABA; HKEX: 9988) has long been one of the most polarizing stocks in global markets. Once a symbol of China’s internet boom, Alibaba has spent much of the last three years under pressure from regulatory crackdowns, slowing consumer demand, and geopolitical headwinds. Its market capitalization shrank by more than $500 billion from its 2020 peak, leaving investors wondering whether the stock would ever regain its former glory.

But recent developments suggest sentiment may finally be shifting. Citigroup, one of Wall Street’s more bullish brokers on Chinese equities, raised its price target for Alibaba ADRs from $187 to $217 and its Hong Kong–listed shares from HK$183 to HK$215, maintaining a Buy rating. The upgrade followed Alibaba’s annual Yunqi Conference, where management unveiled plans to expand data center capacity tenfold, signaling renewed ambition in the cloud computing race.

The news lit a fire under Alibaba shares, sending them sharply higher. For investors who have patiently held through years of underperformance, Citi’s endorsement raises a key question: is Alibaba finally turning the corner, or is this just another short-lived rally?

Alibaba’s Recent Performance: A Stock Trying to Break Free

Alibaba’s ADRs have staged a modest recovery in 2025, bouncing off multi-year lows but still well below their historical highs. For context:

• Alibaba ADRs peaked above $300 in late 2020 before collapsing under regulatory and macroeconomic pressures.

• As of late September 2025, shares trade around $175–$180, implying Citi’s $217 target represents ~20% upside.

• In Hong Kong, shares hover near HK$170, with Citi’s HK$215 target suggesting a similar upside trajectory.

Despite this year’s rebound, Alibaba remains one of the most undervalued mega-cap tech companies globally. Its forward P/E ratio sits around 11–12x, compared to U.S. tech peers like Amazon (~35x), Microsoft (~30x), and Alphabet (~25x). Even when adjusting for China risk, the discount looks unusually steep.

This valuation gap underscores the central question: are investors underestimating Alibaba’s recovery potential, or correctly pricing in long-term risks?

Citi’s Upgrade: Why Analysts Are More Bullish

Citi’s rationale for hiking its price target centers on two key themes:

1. Yunqi Conference Momentum

• Alibaba’s flagship cloud conference attracted strong participation, showcasing rising enterprise demand across AI, big data, and cloud-native applications.

• Analysts noted that Alibaba Cloud appears to be regaining momentum, particularly as Chinese firms shift toward domestic providers amid U.S.-China tech tensions.

• Aggressive Cloud Expansion

• Management’s announcement that data center capacity will increase tenfold in the coming years reflects an enormous bet on future demand.

• Citi responded by raising revenue growth assumptions for Alibaba Cloud and increasing forecasts for capital expenditures, suggesting management is willing to spend heavily now for long-term dominance.

The underlying message: Alibaba Cloud is no longer stagnating—it’s scaling aggressively, positioning itself as China’s answer to Amazon Web Services (AWS).

Alibaba Cloud: The AWS of China?

Alibaba Cloud has always been seen as the company’s “crown jewel,” but its potential has often been overshadowed by the volatility in Alibaba’s e-commerce business.

Historical Performance

• Alibaba Cloud was founded in 2009 and has since grown into China’s largest cloud service provider, with ~30–35% market share.

• The division crossed $10 billion in annual revenue in recent years but has yet to consistently deliver strong profitability.

• Growth slowed during 2022–2023 as price wars and regulatory uncertainty hit margins.

Competitive Landscape

• Tencent Cloud and Huawei Cloud remain formidable rivals, with Huawei making particular gains in infrastructure-heavy contracts.

• However, Alibaba’s broad ecosystem—linking e-commerce, payments (Alipay/Ant Group), and logistics—gives it a unique advantage in cross-selling.

Why the Expansion Matters

If Alibaba Cloud executes on its tenfold capacity expansion, it could become the backbone of China’s AI and digital transformation push. Much like AWS was once Amazon’s “hidden growth engine,” Alibaba Cloud could evolve into a high-margin business that redefines the group’s valuation.

E-Commerce Outlook: Still the Cash Cow

While cloud grabs headlines, Alibaba’s e-commerce business remains the financial foundation.

• Taobao & Tmall – The core platforms dominate Chinese online retail, but face intense competition from Pinduoduo (PDD) and ByteDance’s Douyin (TikTok China).

• International Growth – Alibaba’s Lazada and AliExpress are key players in Southeast Asia and Europe, offering growth avenues outside China.

• Logistics & Supply Chain – Cainiao, Alibaba’s logistics arm, strengthens its e-commerce moat and is becoming a standalone growth driver.

The challenge: domestic e-commerce is maturing, and consumer sentiment in China remains fragile after years of property market stress. Still, if Alibaba stabilizes market share while expanding abroad, its retail business should provide steady cash flows to fund cloud expansion.

Valuation: Breaking Down Alibaba’s Potential

To assess whether Alibaba is worth more than $200, we can approach valuation three ways.

1. Relative Valuation (P/E and EV/EBITDA)

• Alibaba (BABA): Forward P/E ~12x, EV/EBITDA ~7x

• Amazon (AMZN): Forward P/E ~35x, EV/EBITDA ~18x

• Alphabet (GOOG): Forward P/E ~25x, EV/EBITDA ~15x

• Tencent (0700.HK): Forward P/E ~18x, EV/EBITDA ~12x

👉 Even with a “China discount,” Alibaba looks cheap relative to peers. If sentiment improves, a re-rating toward 15–18x P/E could justify Citi’s $217 target.

2. Sum-of-the-Parts (SOTP)

Breaking down Alibaba’s segments:

• E-commerce (China + International): $250–300B valuation (low multiple applied).

• Cloud: $80–100B valuation (conservative vs AWS).

• Logistics (Cainiao): $30–40B valuation.

• Other assets (Ant Group stake, digital media, etc.): $20–30B.

Total SOTP = ~$400–450B, well above Alibaba’s current ~$230B market cap.

3. Discounted Cash Flow (DCF)

• Base Case: Revenue growth 7–8% CAGR, cloud margins expand gradually, WACC 10%. Fair value = ~$200/share.

• Bull Case: Revenue growth 10–12% CAGR, cloud becomes highly profitable, WACC 9%. Fair value = $240–250/share.

• Bear Case: Revenue growth 4–5%, cloud expansion drags margins, regulatory risks persist. Fair value = $150/share.

Citi’s $217 target aligns with the bull-to-base case scenario.

Risks and Headwinds

Investors must recognize that Alibaba’s story carries significant risk:

1. Regulatory Overhang – Beijing’s unpredictable stance on internet platforms could reemerge at any time.

2. Geopolitical Tensions – U.S.-China relations remain fragile, with potential restrictions on cross-border tech and capital flows.

3. Domestic Competition – Pinduoduo, JD.com, and ByteDance continue to chip away at Alibaba’s dominance in retail.

4. Execution Risk in Cloud – Building out data centers is capital-intensive; if demand falls short, margins could suffer.

Investor Sentiment: Still Divided

• Cathie Wood and Ark Invest – Wood has been buying Chinese tech names, including Alibaba, as part of her contrarian strategy. While her trades are volatile, they highlight the perception that Alibaba is undervalued.

• Institutional Investors – Many Western funds remain cautious, preferring U.S. tech. However, value-oriented investors are beginning to revisit Alibaba given its discount.

• Wall Street Analysts – Consensus remains moderately bullish, with most price targets clustered between $190–$220.

Verdict: Buy, Hold, or Wait?

So, should investors chase Alibaba now that Citi has turned more bullish?

• Buy Case: If you believe in China’s digital transformation and Alibaba Cloud’s potential to replicate AWS, then $200+ is realistic—and Citi’s $217 could be conservative.

• Hold Case: If you already own shares, patience may pay off, but expect volatility and headline risk.

• Wait Case: If you’re cautious on China macro and regulation, waiting for earnings confirmation may be prudent.

👉 My view: Alibaba offers compelling value at current levels, but investors must size positions carefully given geopolitical risk. A long-term horizon (3–5 years) is essential.

Key Takeaways

1. Citi raised Alibaba’s ADR price target to $217, citing strong Yunqi Conference momentum and a tenfold data center expansion plan.

2. Alibaba Cloud is emerging as the key growth engine, potentially becoming China’s AWS if execution succeeds.

3. E-commerce remains the cash cow, but competition from PDD and Douyin limits near-term growth.

4. Valuation remains attractive: at ~12x forward P/E, Alibaba trades at a steep discount to global peers.

5. Risks remain high: regulatory uncertainty, U.S.-China tensions, and execution risk in cloud investments.

6. Investor sentiment is cautiously improving, with Wall Street targets now clustering above $200.

7. Verdict: Alibaba is a Buy for long-term, risk-tolerant investors, but volatility should be expected.