A Surprising Turnaround for Alibaba

Alibaba’s Hong Kong-listed shares have surged 46% since hitting a low in mid-January, adding nearly $87 billion in market value.* This makes it the best-performing Chinese tech stock in early 2025, outpacing rivals like Tencent, Baidu, and JD.com. The surge highlights renewed optimism about Alibaba’s AI ambitions and its growing influence in the global tech landscape.

The Game-Changing Partnership with Apple

Alibaba’s collaboration with Apple is a major milestone in China’s AI sector. The partnership will see Alibaba’s AI integrated into iPhones in China, providing Apple with much-needed AI capabilities in a market where it has been losing ground to domestic rivals like Huawei and Vivo. Apple has been in talks with several Chinese tech firms, including Baidu and Tencent, but ultimately chose Alibaba as its AI partner.

Alibaba chairman Joe Tsai confirmed the deal, calling it a “great honor” to work with Apple. The partnership could help Apple address its declining smartphone sales in China, where the lack of advanced AI features has put it disadvantaged against local competitors. For Alibaba, the deal fortifies its status as a key player in China’s AI industry. The company has been aggressively expanding its AI capabilities, with its Qwen 2.5 model recently outperforming DeepSeek’s AI in benchmark tests.

Investor Sentiment and Market Implications

The market response to Alibaba’s AI push has been overwhelmingly positive. Derivatives traders have significantly increased their bullish bets on Alibaba’s stock, with options contract volumes hitting a four-month high. The cost of hedging against declines has also dropped to its lowest level since November.

Despite the rally, Alibaba’s stock remains relatively undervalued compared to U.S. tech giants. It is currently trading at 12.2 times forward earnings, below its five-year average of 14.6 times. Some analysts see this as an opportunity, arguing that Alibaba’s strong AI positioning and international expansion efforts could drive further growth.

However, challenges remain. The monetization of AI services in China is still uncertain, as domestic businesses and consumers have been slow to adopt and pay for AI-driven solutions. Additionally, China’s cloud business growth lags behind global peers, with Alibaba’s cloud revenue rising only 9.7% in the last quarter compared to 31% growth at Microsoft.

Looking Ahead: A New Era for Alibaba?

Alibaba’s dramatic rebound in early 2025 signals a potential turning point for the company. By aligning itself with Apple and investing heavily in AI and cloud computing, Alibaba is positioning itself as a leader in China’s next wave of tech innovation.

The key question now is whether Alibaba can sustain this momentum. If it successfully monetizes its AI advancements and cloud services while navigating regulatory challenges, it could solidify its place as China’s AI powerhouse. For now, investors are watching closely, eager to see if this AI-fueled rally translates into long-term growth.

* Past performance is no guarantee of future results.

Source: Yahoo Finance