Is Alibaba undervalued? Why does Wall Street say it has a 70% rise potential?

An interesting comparison has come: US tech giants have skyrocketed in value due to AI, with the S&P 500 valuation soaring to a 30x PE (historical average of 20x), which seems a bit inflated. Meanwhile, Chinese tech stocks have been neglected, with Alibaba being a typical example.

What is the current situation:

Although Alibaba's stock price has risen by 80% this year, it is still 50% lower than its historical peak. The valuation is only 18 times next year's EPS, which is surprisingly cheap. There is a story behind this—$2.8 billion in antitrust fines in 2021, tightening privacy protections, along with the impact of the pandemic and a slowdown in the Chinese economy, led to only a 2% revenue growth for the fiscal year 2023.

But the twist is coming:

In the past two years, Alibaba has begun to rebound. Although domestic e-commerce growth has slowed, overseas markets (Southeast Asia's Lazada, Turkey's Trendyol, South Asia's Daraz) have become the new engines. The cloud computing business has also come to life—companies are rushing to adopt AI, and Alibaba's Qwen large model is integrated into the cloud platform, leading to a rebound in orders.

How to view the future:

Analysts expect that from 2025 to 2028, Alibaba's revenue and EPS will grow at a compound annual growth rate of 8% and 12%, respectively. If the valuation rises from 18 times to 25 times (historical levels), coupled with stable exchange rates, the stock price could increase by 73%. Key variable? Once the trade situation between China and the US eases, valuation pressure will be significantly released.

Core Logic: The S&P 500 has become expensive, while Chinese concept stocks are being sidelined. Alibaba's fundamentals are recovering, and the risk-reward ratio is interesting.