The surge in Chinese artificial intelligence is again making Alibaba Group Holding Ltd. a top pick for investors, revitalizing the e-commerce giant that had nearly faded into obscurity after years of regulatory pressure.
Alibaba’s Hong Kong-listed shares have soared 46% since reaching their 2025 low on January 13, adding nearly $87 billion to its market value. This growth surpasses the Hang Seng Tech Index’s 25% gain during the same period, making Alibaba the top performer among China’s Big Tech firms this year, outpacing competitors like Tencent Holdings Ltd., Baidu Inc., and JD.com Inc.
Alibaba’s resurgence comes as a surprise. It had lost investor favor due to Beijing’s crackdown on tech giants and a post-COVID slump in consumer spending. Driving the rally is growing optimism over the company’s push to develop its AI services and platform. This momentum grew after Chinese AI startup DeepSeek introduced technologies that triggered a sell-off on Wall Street.
Alibaba’s shares received a fresh boost on Wednesday following a report by The Information that Apple Inc. is collaborating with the e-commerce giant to introduce AI features in China.
“The emergence of DeepSeek has sparked a new AI-related catalyst for Chinese tech stocks,” said Andy Wong, investment and ESG director for Asia Pacific at Solomons Group. “Within this space, we see Alibaba as having more tangible and well-established earnings growth prospects in the medium term.”
Alibaba’s 2025 rebound results from a year-long transformation led by two of Jack Ma’s longtime allies, Joe Tsai and Eddie Wu. As chairman and CEO, the duo—part of the original team that founded Taobao in Ma’s lakeside apartment—took charge in 2023 following years of regulatory scrutiny and a post-COVID slump that hit the company’s cloud and consumer divisions. Their strategy focused on returning to fundamentals, starting with consolidating and streamlining Alibaba’s fragmented core commerce operations.
They also made a bold push into AI. Since ChatGPT’s emergence, Alibaba has invested in several of China’s most promising startups, including Moonshot and Zhipu. The company prioritized expanding its cloud business—the backbone of AI development—by cutting prices to regain customers who had switched to competitors during turbulent times. Additionally, Alibaba ramped up its AI investments, joining a race that Baidu led.
In January, these efforts began to pay off. Alibaba released benchmark results showing that its Qwen 2.5 Max model outperformed Meta Platforms Inc.’s Llama and DeepSeek’s V3 in multiple tests. The company is positioning itself as a major AI contender, competing alongside industry giants like Tencent and ByteDance Ltd. and rising startups such as Minimax and Zhipu.
However, it’s still in the early stages.
One of the significant challenges for Chinese AI companies is the slower adoption and reluctance of domestic consumers and businesses to pay for these services.
“Many hedge funds and long-only investors see AI as a potential inflection point for Alibaba, with some expressing interest in understanding the valuation of Alibaba’s cloud business and any upside from large language models,” JPMorgan Chase & Co. analysts including Alex Yao wrote in a note. “The AI narrative is seen as a driver for potential re-rating, but there are concerns about the monetization of AI capabilities.”
Moreover, the growth of cloud businesses for Chinese hyperscalers has been slower than that of their major US counterparts. Analysts estimate that Alibaba’s cloud revenues grew 9.7% year-over-year in the December quarter, while Baidu saw a 7.7% increase. In comparison, Amazon.com Inc. and Microsoft Corp. experienced 19% and 31% growth, respectively.
Derivative traders are ramping up their bets. On Wednesday, options contract volumes in Hong Kong were more than double the 20-day average and hit a four-month high. Over 110,000 bullish contracts were traded, compared to more than 74,000 puts. The cost of hedging against declines has dropped to its lowest since November.
Despite the recent rally, Alibaba’s valuations still appeal to some investors. Its shares are trading at 12.2 times forward earnings, below its five-year average of 14.6 times.
“Despite the rally, Alibaba’s stock is still undervalued compared to its US tech peers, considering its growth potential and market position,” said Manish Bhargava, chief executive officer at Straits Investment Management in Singapore. “The company is expanding its overseas marketplaces, which could reduce its reliance on the domestic Chinese market and drive future growth.”
