Alibaba's AI-Driven Rebound: A 2026 Bull Case with 25-40% Upside

The global technology sector is entering a pivotal phase, where artificial intelligence (AI) is reshaping competitive dynamics and redefining valuation paradigms. Alibaba Group, a titan in China's digital economy, stands at the intersection of these forces. Its strategic pivot toward AI and cloud computing has already delivered robust financial results, while valuation metrics and analyst sentiment suggest a compelling case for a re-rating in 2026. This analysis explores how technical and fundamental factors converge to support a 25-40% upside for Alibaba's stock.

Fundamental Catalysts: AI and Cloud as Growth Engines

Alibaba's Cloud Intelligence Group has emerged as a standout performer, driven by surging demand for AI applications. For the quarter ended September 30, 2025, cloud computing revenue surged 34% year-on-year to 39.8 billion yuan, exceeding market expectations. This growth was fueled by triple-digit year-over-year expansion in AI-related product revenue, a trend that has persisted for nine consecutive quarters. CEO Eddie Wu emphasized that investments in AI and cloud infrastructure are accelerating the division's growth, positioning Alibaba as a leader in China's tech landscape.

Beyond cloud computing, Alibaba's broader AI strategy is gaining traction. The company's total revenue for the quarter reached 247.8 billion yuan, up 5% year-on-year, despite a 53% decline in net income. This underscores the trade-off between short-term profitability and long-term growth, a common theme in AI-driven tech firms. Alibaba's balance sheet remains resilient, with approximately $41 billion in net cash, providing flexibility to reinvest in high-potential areas.

Valuation metrics further reinforce the bull case. Alibaba's Price-to-Earnings (P/E) ratio of 18.3x is significantly below the peer average of 36.4x and the industry average of 19.5x. A Discounted Cash Flow (DCF) analysis by Simply Wall St estimates its intrinsic value at $267.85 per share, implying a 41.4% undervaluation relative to its current price. Morningstar's fair value estimate of $258 per ADS aligns with this assessment, highlighting the market's underappreciation of Alibaba's execution capabilities and cloud potential.

Technical Indicators: Mixed Signals and Re-Rating Potential

Technical analysis of Alibaba's stock (BABA) reveals a nuanced picture. As of Q4 2025–Q1 2026, the 14-day RSI hovers around 37–38, suggesting oversold conditions. However, the stock is trading below key moving averages, including the 50-day (159.58) and 100-day (155.67), which typically signal bearish momentum. The 200-day moving average at 137.51 remains the only positive signal.

Despite these short-term headwinds, Alibaba's valuation fundamentals suggest a potential re-rating. The Relative Valuation model estimates its fair price at $175.36, a 14.7% upside from its current level. Analysts from institutions like MarketBeat and Jefferies have set 12-month price targets ranging from $167.40 to $190, with outliers reaching $240. These targets reflect confidence in Alibaba's ability to monetize its AI and cloud infrastructure, even as core e-commerce margins face pressure from competitors like Pinduoduo and JD.com.

Convergence of Fundamentals and Technicals

The convergence of Alibaba's AI-driven growth and undervaluation creates a compelling narrative for a 2026 re-rating. Historically, tech stocks with strong cash flows and disruptive technologies have experienced sharp rebounds when market sentiment aligns with fundamentals. Alibaba's triple-digit AI revenue growth and disciplined cost management position it to capitalize on this dynamic.

Moreover, macroeconomic factors could amplify Alibaba's upside. The Federal Reserve's renewed liquidity injections, such as its monthly Treasury bill purchases, are likely to support risk assets in 2026. If Alibaba's cloud and AI segments continue to outperform, the stock could attract institutional buyers seeking exposure to high-growth tech plays.

Risks and Mitigants

Critics highlight risks, including regulatory pressures in China and geopolitical tensions affecting global expansion. Additionally, Alibaba's Q2 free cash flow turned negative due to aggressive infrastructure investments. However, its robust balance sheet and ecosystem-driven advantages in e-commerce provide a buffer against these challenges.

Conclusion: A 25-40% Upside in 2026

Alibaba's bull case hinges on the convergence of AI-driven fundamentals and undervaluation. With cloud revenue growing at 34% YoY and a DCF-estimated intrinsic value 40% above current levels, the stock appears poised for a re-rating. While technical indicators remain mixed, the long-term trajectory of Alibaba's AI and cloud businesses suggests a 25-40% upside by 2026, aligning with analyst price targets and valuation models. For investors with a medium-term horizon, Alibaba represents a high-conviction opportunity in the evolving AI landscape.