To The Moon

$Alibaba(BABA)$

Despite the market's volatility over the past month, Alibaba's stock has surged more than 23%. Several key catalysts have driven this rally, including developments around tariffs and the impact of DeepSeek on AI in China. However, investors will be looking for a tangible impact on Alibaba’s earnings from these factors. The company is set to report its Q4 earnings on February 20th, which will provide more clarity on its financial outlook.

In today’s article, we’ll dive into all of this and more. Given the recent sell-off among large tech stocks, I’m considering adding to my positions in Google and Microsoft if their prices continue to decline. Google remains one of the most attractively valued companies within the “Magnificent Seven,” while Microsoft has underperformed over the past year—a trend I don’t expect to persist. If these stocks dip further, they could present great buying opportunities.

That said, history has shown that Alibaba’s stock frequently hits the $100-$120 range before pulling back to around $85 per share. However, if you're bullish on Alibaba, as I am, you believe that at some point, the stock will break past $120 and sustain higher levels. The key question remains: What catalyst will drive this sustained upward move? Many thought it would be the Chinese government’s economic stimulus, but we’ll need to see how things unfold.

More recently, Alibaba's stock price has been climbing due to developments around tariffs imposed by Trump on China. Initially, during his campaign, Trump mentioned a potential 60% tariff on Chinese goods. However, the latest figure being discussed is a much lower 10% on imports from China. This significant reduction from the original 60% has been viewed positively for China and Chinese companies, contributing to Alibaba’s recent stock price surge.

Another major catalyst for Alibaba—and China’s economy as a whole—has been the recent news surrounding DeepSeek. Unless you’ve been living under a rock, you’re likely aware of the breakthrough AI technology they’ve developed. A rumor recently surfaced suggesting that Alibaba was investing in DeepSeek. However, one of Alibaba’s executives has since denied this, stating that the company is not currently making any investments in DeepSeek.

Despite this, DeepSeek remains a significant driver for Chinese companies. Their advancements have demonstrated that cutting-edge AI development is possible without access to the most powerful chips—something the U.S. has restricted China from obtaining. This is a game-changer for companies like Alibaba, allowing them to leverage AI technology without relying on high-end hardware. Alibaba is already a key player in the AI space, having developed its own AI models, which some claim to be even more advanced than DeepSeek’s. However, with every company making similar claims, the real question is how well they can integrate AI into their business operations.

For Alibaba, one of the most impactful AI applications lies in chatbots. While chatbots have gained popularity for casual use, their long-term potential is far greater—especially in bridging language barriers. Since Alibaba manufactures goods in China and sells them globally, language differences between suppliers and customers can be a challenge. If AI-powered chatbots can effectively bridge these gaps, it could significantly boost conversions and enhance customer experience, ultimately driving long-term revenue growth.

Speaking of financials, Alibaba is set to report its next earnings on February 20th, with estimates projecting an EPS of $22.70 and revenue of $38.24 billion. If achieved, this would mark a record for quarterly revenue, surpassing the previous high of $38.6 billion set in 2021. Over the past few quarters, Alibaba has delivered strong revenue growth, bringing its trailing 12-month revenue to $134.4 billion—just shy of its all-time record of $134.56 billion from March 2022.

However, one point of concern is Alibaba’s year-over-year growth rate. While $38 billion in quarterly revenue is impressive, it represents only 5-6% growth, a slowdown from the previous quarter’s 9% year-over-year growth. Investors will be watching closely to see if the company can reaccelerate its growth in the coming quarters.

In the past, Alibaba consistently achieved double-digit topline growth. However, during 2020 and 2021, we saw a massive pull-forward in demand, with revenue surging 101% in a single quarter—an extraordinary and unsustainable increase. While such rapid growth is unlikely to return, if Alibaba can regain a 15-20% topline growth rate, it would be a strong step in the right direction.

That said, revenue growth alone isn’t enough—investors also want to see bottom-line improvements. Between 2019 and 2021, Alibaba’s trailing 12-month EPS ranged from $7 to $9 per share. However, more recently, this figure has nearly been cut in half, dropping to $4.97. The good news is that analysts expect earnings to recover over the next few years. In 2024, EPS was around $8.54, with projections of $8.63 in 2025. But the biggest jump is expected in 2026, where the average EPS estimate sits at $19.73—a substantial increase.

Personally, I believe Alibaba will not only see strong bottom-line growth in 2026, but also a return to 15-20% growth in both revenue and earnings. This kind of performance would lead to valuation expansion. Currently, Alibaba’s forward P/E ratio sits at 10.73, which I consider exceptionally low for a company of its scale.

If Alibaba under performs and only achieves around $6.79 EPS in 2026, the stock could trade at a P/E of 15, meaning its current price is fair. However, if they meet expectations with $8.63 EPS, there’s no reason they couldn’t trade in line with the S&P 500’s 20-25 P/E range, which would put the stock between $170 and $215 per share.

But if Alibaba outperforms and achieves 15-20% growth in both revenue and earnings, that could push EPS to $9.57. In that scenario, the stock could trade at a 25-35 P/E ratio, similar to Nasdaq tech companies, resulting in a potential price between $240 and $335 per share.

In my view, the most realistic scenario for Alibaba is around $170 per share. This could play out in two ways:

1. They underperform on earnings but receive a higher valuation more in line with the broader market.

2. They meet expectations but trade at a lower P/E ratio (~20) compared to the S&P 500.

Either way, this represents strong upside from the current price. Keep in mind that I hold shares in Alibaba because I’m bullish on the company’s future. I believe Alibaba has a strong competitive moat in China and will benefit as the Chinese economy recovers in the coming years.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub