Is Alibaba Stock an Undervalued Stock Right Now? | BABA Stock Analysis

Hinzugefügt: 2026-05-19

[00:00:00]Alibaba is reporting triple-digit growth in its AI business, but overall the company is not growing anywhere near as quickly. I'll answer if Alibaba stock is a buying opportunity in this video here.

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[00:00:21]Alibaba's management team on May 13th told investors that during the quarter they achieved accelerated breakthroughs across models, cloud infrastructure, and applications.

[00:00:32]They launched multiple enterprise AI agents for office and coding use cases, and they fully integrated e-commerce capabilities. So, it went on to say that cloud intelligence group's revenue continued to accelerate with AI-related product revenue achieving triple-digit growth for the 11th consecutive quarter.

[00:00:53]So, it's not just in the United States that AI cloud revenue and AI revenue is booming. Even in regions like China, companies and individuals are experimenting and utilizing artificial intelligence at an accelerating pace.

[00:01:11]But overall, Alibaba's revenue in the most recently completed quarter only increased by 3% year over year.

[00:01:19]The company's operating income actually declined and turned negative, and the management team said that this was primarily attributable to the investment in technology, in quick commerce and user experiences, and that was offset by improved operating results supported by continued growth in customer management service and cloud business, as well as enhanced operating efficiencies across various businesses.

[00:01:47]Still, if you look back longer term on Alibaba's profitability metrics, they don't look attractive.

[00:01:54]And they were turning things around briefly, but those improvements turned negative again with this new reinvestment cycle.

[00:02:03]>> [snorts] >> In the orange there, you have the company's operating cash flow to sales ratio, which has collapsed to 7.4% down from 52% in 2017.

[00:02:15]Similarly, their operating profit margin has collapsed to 4.9% down from 30% in 2017.

[00:02:23]Between 2022 and 2025, they were making great progress in improving their operating margins from 8.2 to 14% but in recent quarters and in their last, I want to say, six quarters, that's turned south again as they've reinvested in the business with artificial intelligence and customer incentives to attract more business to generate and reinvigorate revenue growth. Those reinvestments have turned profitability sour again and the competition in the Chinese economy is intense. Businesses are offering significant promotions, incentives, discounts, and making significant investments in capacity, all of which is driving down profitability industry-wide.

[00:03:12]Year-to-date, Alibaba stock is down 3%.

[00:03:16]It's had a rally over the last month jumping from $120 per share up to $142 per share. This year, I've had Alibaba stock rated as a hold and I last updated my rating on January 19th, 2026. A while back, I had the stock rated as a buy when the valuation was a lot more attractive in 2025. It was trading near the single digits in forward price to earnings and forward price to operating cash flow. This is when I was recommending the stock as a buying opportunity back in early and mid-2025 when the valuations were a lot more attractive. Now, on a forward price to earnings basis, it's trading near the high point at 21.22 and compared to in early 2025, it was trading at a forward price to earnings of nine. So, the valuation has more than doubled on a forward price to earnings basis and similarly on a forward price to operating cash flow, the valuation has increased from around seven to around 11. So, the valuation is not as attractive as it was in early 2025 and sure the business is accelerating AI growth, but not overall revenue growth for the company and these slight improvements in revenue are coming at a large expense in capital expenditures and other investments to try and reinvigorate that growth. So, I also updated my discounted cash flow model valuation for Alibaba and I came to the conclusion that the business is worth about $148 per share. The current market price is $143 per share. So, it looks fairly valued based on my discounted cash flow valuation model and and I could say the same about the market multiples valuation on a forward PE and forward price to operating cash flow, this looks fairly valued. I wouldn't say it's overvalued at these levels even though historically in looking back a couple of years, it's near the higher end of the valuation.

[00:05:21]The business is also on the cusp of accelerating revenue growth on the back of these investments. So, it deserves a higher valuation compared to early 2025.

[00:05:32]But overall, given the risk versus reward, it doesn't look like an attractive opportunity to me. I had the stock rated as a hold on January 19th, 2026 and today I will reiterate that hold rating on Alibaba stock.