Alibaba’s AI Momentum Reshapes Investor Sentiment
Alibaba Group Holding Ltd. (NYSE: BABA; HKG: 9988) has emerged as one of the hottest artificial intelligence (AI) trades of 2025, riding a stunning $250 billion stock rally. Once weighed down by years of regulatory crackdowns and weak domestic consumption, the Chinese e-commerce and cloud giant is now staging a massive comeback.
At the heart of this turnaround is Beijing’s vision of technological self-reliance, with Alibaba positioned as a national AI champion. The company’s aggressive push into large language models (LLMs), cloud computing, and AI infrastructure has transformed market sentiment, sparking a wave of fear of missing out (FOMO) among global investors.
Yet, the rally is not without questions. With valuations rising and competition fierce, can Alibaba truly sustain this growth? Or is it simply another case of AI-driven euphoria inflating stocks beyond reason?
A Stock Still Far Below Its Peak
Despite doubling this year, Alibaba shares remain 65% below their 2020 highs, leaving ample room for optimism among investors who believe the company is still undervalued compared to U.S. Big Tech peers like Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT).
Fund managers highlight that global portfolios remain underweight on Alibaba. According to Morgan Stanley data, international funds were 1.3% below Alibaba’s weighting in the MSCI China Index as of August. That gap is expected to narrow, potentially fueling further upside.
“We expect this underweight position to change,” said Jian Shi Cortesi of GAM Investment Management. “The rally has already created momentum, and the fear of missing out could accelerate flows into Alibaba.”
Renewed Investor Confidence in Chinese Tech
Alibaba’s rebound comes after years of regulatory turbulence in China, which saw sweeping crackdowns on internet platforms, private tutoring, and fintech. Those policies erased trillions in market value from Chinese equities.
Now, however, signs of policy stabilization and renewed government support for AI and digital infrastructure are fueling investor optimism. Beijing’s emphasis on homegrown AI models and chips aligns with Alibaba’s long-term strategy, reinforcing its role as a tech bellwether.
Domestic investors are already piling in. Onshore ownership of Alibaba shares rose to 11% in September, up from 8.6% just a month earlier, according to Hong Kong exchange data. Meanwhile, foreign managers like Cathie Wood have reopened positions in Alibaba’s U.S.-listed ADRs for the first time in years.
Alibaba’s AI Strategy: Spending, Cloud, and Scale
One of the key drivers of Alibaba’s resurgence is its commitment to AI spending. CEO Eddie Wu recently signaled that the company’s $53 billion AI budget for the next three years could be expanded, underscoring its ambition to compete with U.S. hyperscalers.
In comparison, Amazon, Microsoft, Alphabet, and Meta are projected to spend more than $344 billion on AI infrastructure in 2025 alone, making it essential for Alibaba to keep pace.
The company’s cloud division has already become its fastest-growing unit, posting a 26% revenue jump last quarter. That growth is driven by enterprises adopting AI-powered cloud services, alongside Alibaba’s rollout of its Qwen large language models.
“Alibaba is one of the few Chinese companies with the AI trifecta: advanced LLMs, access to chips, and a massive cloud infrastructure,” said Xiadong Bao of Edmond de Rothschild Asset Management. “That combination makes it a standout player.”
Comparisons With U.S. Big Tech
Alibaba’s valuation multiples remain attractive relative to peers. The company trades at about 22 times forward earnings, roughly in line with the Hang Seng Tech Index and well below Amazon or Microsoft.
At its peak, Alibaba commanded a multiple of 29x forward earnings, leaving room for re-rating if the company demonstrates sustained growth in AI adoption and cloud dominance.
As Richard Clode of Janus Henderson puts it: “I don’t think anyone will be calling Alibaba’s valuation egregious anytime soon. Compared to its U.S. peers, Alibaba looks reasonably priced.”
Risks Lurking Beneath the Rally
Despite the optimism, risks remain.
- Economic headwinds: China’s economy continues to face weak consumption, a property downturn, and geopolitical uncertainty.
- Domestic competition: Rivals like Tencent and ByteDance remain formidable, while aggressive price wars in sectors like food delivery can erode margins.
- Global skepticism: While Chinese investors are buying, overseas funds remain cautious, wary of regulatory uncertainty and market volatility.
- Technical signals: Alibaba’s 14-day relative strength index (RSI) suggests the stock is currently overbought, raising the possibility of short-term pullbacks.
Short interest in Hong Kong shares has also climbed to 0.47% of free float, the highest since its 2019 listing.
Options Market Signals Confidence
Options traders are betting on continued gains. The cost of bullish options on Alibaba relative to the Hang Seng Tech Index is at its highest since 2022. Outstanding contracts have surged to record levels, showing that investors are positioning for more upside, even at elevated valuations.
This aligns with the consensus among sell-side analysts, who overwhelmingly rate Alibaba as a “Buy” despite short-term volatility.
Conclusion: Alibaba at the Crossroads of AI and Market Sentiment
Alibaba’s $250 billion AI-fueled rally is a turning point not just for the company, but for China’s broader technology ambitions. By combining AI innovation, cloud dominance, and government alignment, Alibaba has regained its status as a strategic national champion.
However, investors should remain mindful of the dual narrative: while long-term prospects look promising, near-term risks — from economic weakness to heightened competition — could temper enthusiasm.
For now, FOMO is firmly in control, and Alibaba remains one of the most compelling ways for global investors to gain exposure to China’s AI-driven growth story. Whether this rally extends or corrects, Alibaba has once again proven it cannot be ignored in the global AI race.
FAQ Section
1. Why is Alibaba stock rallying in 2025?
Alibaba’s rally is fueled by its aggressive investment in AI, cloud computing growth, and Beijing’s push for technological self-reliance. Its shares have doubled this year, adding $250 billion in market value.
2. How does Alibaba compare to U.S. AI leaders like Amazon and Microsoft?
Alibaba trades at around 22x forward earnings, much lower than Amazon or Microsoft. While it lags in spending power, its cloud division and AI models give it strong competitive positioning in China.
3. Is Alibaba still undervalued?
Yes, despite the rally, Alibaba remains about 65% below its 2020 highs. Global investors are still underweight on the stock, suggesting more room for growth if sentiment shifts further.
4. What risks does Alibaba face in the AI boom?
Risks include China’s economic slowdown, domestic competition from Tencent and ByteDance, global regulatory scrutiny, and technical overbought signals.
5. Should investors buy Alibaba now or wait?
Long-term investors may see value in Alibaba’s AI leadership and cloud expansion. However, short-term traders should be cautious, as the stock’s RSI shows it may be overbought and due for a pullback.