Alibaba's Contrarian Growth Play Amid U.S.-China Trade War Easing

Alibaba (BABA) is seen as a contrarian growth play due to US-China trade tensions. However, with ongoing trade de-escalation and diplomatic signals, sentiment may shift, making Alibaba well-positioned to benefit from the rebound. The stock has nearly 50% upside over the next 12 months, according to Wall Street consensus, and is fundamentally undervalued with a forward non-GAAP P/E of 11. Major investors, such as Bridgewater, have been accumulating shares, signaling growing confidence in the stock.

Amidst ongoing US-China trade tensions, Alibaba Group (BABA) has emerged as a contrarian growth play, presenting an attractive opportunity for investors. Despite recent market skepticism, Alibaba's undervaluation, strategic investments in AI and robotics, and resilient e-commerce dominance position it well for a rebound [1].

The stock has seen a 27% decline from its 2025 highs, creating a mispricing anomaly. Currently trading at a forward 12-month P/E ratio of 8.43x, Alibaba is nearly half the industry average of 25.72x [1]. This discount reflects market pessimism over short-term challenges such as regulatory scrutiny and trade friction. However, the fundamentals tell a different story. A discounted cash flow (DCF) model estimates intrinsic value at $111.33, 7% above current prices, while analysts' consensus price target of $153.62 implies a 47.95% upside [1].

Alibaba's Alibaba Cloud division, with a 37% market share in China, is a crown jewel often overlooked in its valuation. The division is expanding globally, with new data centers in Southeast Asia and a cloud revenue surge of 7% sequentially in AI-driven services [1]. The company is investing $50 billion over three years in AI, robotics, and logistics automation, positioning itself to dominate the next wave of tech innovation.

Despite rising competition, Alibaba retains 46 million premium 88VIP members on Taobao/Tmall, demonstrating its brand loyalty. Its Alibaba International Digital Commerce segment grew 29% in 2024, driven by AliExpress and Southeast Asia's Trendyol [1]. The company's "New Retail" strategy, blending physical and online commerce, ensures adaptability to consumer shifts.

Trade tensions have pressured tech stocks, but Alibaba's $130 billion+ in annual revenue, with 60% domestic, insulates it from export volatility. Its $22 billion buyback program further underscores confidence in its China-centric moat [1]. Meanwhile, its international ambitions, such as expanding cloud services in Malaysia, the Philippines, and Europe, are low-risk bets given its capital strength.

Recent market sentiment has shifted positively, with Alibaba closing at $107.99, moving +1.62% from the previous trading session [2]. The stock exceeded the S&P 500, which registered a loss of 0.07% for the day. Major investors, such as Bridgewater, have been accumulating shares, signaling growing confidence in the stock.

Alibaba's upcoming earnings release will be of great interest to investors. The company is expected to report EPS of $2.48, up 9.73% from the prior-year quarter, with revenue projected at $34.85 billion, indicating a 4.13% increase compared to the same quarter of the previous year [2]. The Zacks Consensus Estimates suggest analysts are expecting earnings of $10.14 per share and revenue of $143.9 billion for the full year, marking changes of +12.54% and +4.17%, respectively, from last year [2].

Alibaba's valuation is a contrarian's dream, with the stock trading at half its historical P/E average. With a forward non-GAAP P/E of 11, the stock presents a compelling opportunity for long-term investors. The upcoming trade de-escalation and diplomatic signals may shift sentiment further, positioning Alibaba well for a rebound.

References:
[1] https://www.ainvest.com/news/alibaba-undervalued-potential-contrarian-play-tech-dominance-resilience-2507/
[2] https://finance.yahoo.com/news/alibaba-baba-rises-market-takes-214503989.html?.tsrc=rss