Alibaba: The Undervalued AI Powerhouse Poised for a 60%+ Upside in 2025–2026

Alibaba: The Undervalued AI Powerhouse Poised for a 60%+ Upside in 2025–2026

The global cloud computing and AI markets are undergoing a seismic shift, and Alibaba Group (BABA) is emerging as a pivotal player. With its Cloud Intelligence Group driving triple-digit AI-related revenue growth and a valuation that appears disconnected from its fundamentals, Alibaba is positioned to deliver a 60%+ upside over the next 12–18 months. This analysis examines how AI-driven cloud expansion, robust EBITA growth, and a favorable valuation profile are catalyzing a re-rating of one of China’s most influential tech giants.

AI-Driven Cloud Growth: The Engine of Re-Rating

Alibaba Cloud’s transformation into an AI powerhouse is no longer a speculative narrative—it is a proven revenue driver. In Q2 2025, the unit reported a 26% year-on-year revenue increase to $4.7 billion, with AI-related product revenue growing at a triple-digit rate for eight consecutive quarters [1]. This growth is not isolated to a single vertical: enterprises across finance, logistics, and manufacturing are adopting Alibaba’s AI tools, from its Qwen large language model (LLM) to AI-powered analytics platforms [2].

The scale of Alibaba’s AI monetization is staggering. AI-related services now account for over 20% of Alibaba Cloud’s total revenue, a figure that CEO Eddie Wu has described as a “strategic inflection point” [3]. This shift is supported by Alibaba’s infrastructure investments, including the open-sourcing of over 200 AI models and achieving 300 million global downloads—a move that accelerates ecosystem adoption while maintaining high-margin SaaS revenue streams [4].

Competitive Valuation: A Discount to Peers and Intrinsic Value

Despite these tailwinds, Alibaba’s stock trades at a compelling discount relative to both peers and its intrinsic value. As of June 2025, the company’s forward P/E ratio stands at 14.86x, significantly below the Multiline Retail industry average of 22.50x and Amazon’s 22.50x [5]. Analysts argue this disconnect is unjustified, given Alibaba’s 36% year-on-year EBITA growth in Q2 2025 and its planned $52.5 billion investment in AI and cloud infrastructure over the next three years [6].

Price targets further underscore the undervaluation. A consensus of 18 analysts assigns Alibaba a 12-month average price target of $161.34, implying a 19% upside from its current price. The Street-high target of $195.00—a 43.8% upside—reflects optimism about Alibaba’s ability to capture market share in China’s 33% cloud infrastructure market and expand globally [7]. Even conservative estimates suggest Alibaba is trading at a 23.8% discount to its intrinsic value, based on discounted cash flow (DCF) models projecting free cash flows of $201.5 billion by 2035 [8].

EBITA Expansion and Strategic Momentum

Alibaba’s financial discipline is another overlooked strength. While investing heavily in AI, the company has managed to expand its adjusted EBITA by 26% year-on-year in Q2 2025, outpacing revenue growth and signaling efficient capital allocation [9]. This is critical in a sector where many competitors prioritize scale over profitability.

Strategically, Alibaba is leveraging its AI ecosystem to create network effects. The Qwen model family, for instance, is not just a technical achievement but a business lever: by integrating Qwen into enterprise workflows, Alibaba locks in customers while generating recurring revenue from compute, storage, and AI-as-a-Service (AIaaS) [10]. Meanwhile, its $52.5 billion investment plan—announced in Q2 2025—signals a long-term commitment to outpace rivals like AWS and Microsoft Azure in AI-driven cloud innovation [11].

Risks and Cautions

No investment thesis is without risks. Regulatory pressures in China, geopolitical trade tensions, and the cyclical nature of tech valuations remain headwinds. However, Alibaba’s diversified revenue streams (e-commerce, cloud, AI) and strong balance sheet (with $6.25 billion in net income for Q2 2025) provide a buffer against macroeconomic volatility [12]. Analysts at Barclays and Benchmark Co. have upgraded their price targets to $190–$195, citing these mitigants and Alibaba’s “unique position in the AI cloud race” [13].

Conclusion: A Catalyst-Driven Re-Rating

Alibaba’s AI-driven cloud growth is not just a short-term trend—it is a structural shift that is redefining its business model and valuation. With triple-digit AI revenue growth, a discounted P/E ratio, and a $52.5 billion investment plan, the company is poised to outperform in a sector where AI adoption is accelerating. For investors, the combination of undervaluation, EBITA expansion, and strategic momentum makes Alibaba a compelling case for a 60%+ upside in 2025–2026.

Source:
[1] Alibaba shares surge as AI boom drives cloud unit sales [https://www.cnbc.com/2025/08/29/alibaba-baba-june-quarter-2025-earnings-report.html]
[2] Alibaba Cloud Q4 growth strong as Qwen, AI workloads extend reach [https://www.constellationr.com/blog-news/insights/alibaba-cloud-q4-growth-strong-qwen-ai-workloads-extend-reach]
[3] Alibaba's AI-Driven Cloud Surge: How AI Revenue Reshaping the Global Economy [https://www.mitrade.com/insights/news/live-news/article-8-1105115-20250908]
[4] Prediction: Alibaba Will Double Over the Next 3 Years. Reshaping the Global Economy [https://www.mitrade.com/insights/news/live-news/article-8-1095581-20250904]
[5] Does Alibaba's 2025 Rally Still Have Room After China Tighten [https://simplywall.st/stocks/us/retail/nyse-baba/alibaba-group-holding/news/does-alibabas-2025-rally-still-have-room-after-china-tighten]
[6] Alibaba Cloud rebounds as telco cloud bubble deflates [https://www.lightreading.com/cloud/alibaba-cloud-rebounds-as-telco-cloud-bubble-deflates]
[7] Alibaba (BABA) Stock Forecast & Price Target [https://www.tipranks.com/stocks/baba/forecast]
[8] Wall Street Analysts See Alibaba (BABA) as a Buy [https://finance.yahoo.com/news/wall-street-analysts-see-alibaba-204746567.html]
[9] Alibaba's June 2025 Earnings: Can AI and Stimulus Fuel a Breakout? [https://www.ainvest.com/news/alibaba-june-2025-earnings-ai-stimulus-fuel-breakout-2508]
[10] Alibaba Cloud’s AI-Driven Revenue Growth [https://www.aiplexity.com/picks/2025-09-02-03]
[11] Alibaba: The Undervalued Giant Poised For Its Next [https://www.lightreading.com/cloud/alibaba-cloud-rebounds-as-telco-cloud-bubble-deflates]
[12] Emerging Market Links + The Week Ahead (September 2, 2025) [https://emergingmarketskeptic.substack.com/p/emerging-markets-week-september-2-2025]
[13] Alibaba Stock Is Undervalued and Poised for 60% Upside [https://www.theglobeandmail.com/investing/markets/stocks/BABA-N/pressreleases/32870094/alibaba-stock-is-undervalued-and-poised-for-60-upside/]