Alibaba Approaches Three-Year High Amid AI Surge, Revaluation of China Tech Stocks Underway

Moomoo News Global wrote a column · Feb 13 17:41

$Alibaba (BABA.US)$ has seen its shares surge for five consecutive weeks, with a cumulative gain of 48% since mid-January. On Wednesday, the stock briefly touched $119, surpassing the rapid rally witnessed in September 2024, driven by shifts in macroeconomic policy.

Alibaba Approaches Three-Year High Amid AI Surge, Revaluation of China Tech Stocks Underway

By midday Thursday in Asia, Alibaba confirmed a partnership with Apple Inc. to develop AI features for iPhones in China, sending its stock up more than 9% in after-hours trading to its highest level since 2022.

AI Sparks Revaluation of Alibaba

Prior to this rally, Alibaba's valuation was stuck at about 10 times earnings, as investors primarily viewed it as an e-commerce player, focusing on its e-commerce business, cloud margins, and share buybacks, while underestimating its AI and cloud computing capabilities. Chinese stocks also faced geopolitical pressures.

The shift in Alibaba's valuation came with the global emergence of China's AI large models last month. DeepSeek's introduction underscored the capabilities of China's AI models, which are rapidly closing the gap with U.S. counterparts and offering cost advantages.

On Jan. 29, Alibaba unveiled the Qwen2.5-Max model, featuring a mixture-of-experts architecture and trained on over 20 trillion tokens, marking breakthroughs in several technical metrics.

Following the rally, Alibaba's valuation reached 24 times earnings, still behind the 30-40 times multiples of U.S. tech giants. A JPMorgan survey of over 100 Alibaba investors showed increasing optimism, with many hedge funds and long-term investors seeing AI as a potential turning point for the company.

Apple considered several Chinese firms but chose Alibaba for its AI capabilities. Analysts cite Alibaba's extensive consumer data as a key factor, enabling its AI to better understand Chinese users, appealing to Apple.

The focus in AI is shifting from model competition to application development. Investors hope to see Alibaba's AI large model business transition from a cost center to a profit engine.

Alibaba is set to release its earnings on February 20, and management's commentary on AI development plans during the earnings call could trigger significant stock movement, presenting substantial options trading opportunities.

Revaluation of Chinese Tech Stocks Begins

Alibaba’s rally is part of a broader surge in Chinese assets. The $NASDAQ Golden Dragon China (.HXC.US)$ has rebounded nearly 20% from its lows over the past month, with an 8% gap remaining to its September highs.

In recent trading, $EHang (EH.US)$ rose over 48%, while $21Vianet (VNET.US)$, $GDS Holdings (GDS.US)$, and $Kingsoft Cloud (KC.US)$ gained over 32% and 15% respectively. Companies like $KE Holdings (BEKE.US)$ and $TAL Education (TAL.US)$ saw increases of over 19% and 17%, with $Li Auto (LI.US)$ climbing more than 12%.

Wall Street banks have expressed optimism about the revaluation of Chinese tech stocks. Market consensus attributes the catalyst to DeepSeek’s breakthrough AI model, driving global investors to "reassess Chinese assets," coinciding with concerns over high valuations and slowing growth of U.S. tech giants.

Morgan Stanley strategists, led by Laura Wang, noted on Feb. 11, "Global investors are starting to reassess China’s investability within the tech and AI space, after an extended period of limited attention. We expect the momentum to sustain in the near-term given global investors’ light positioning."

Deutsche Bank's Asia-Pacific head of corporate research, Mali Quinn, recently stated that 2025 will be pivotal for reassessing China's competitiveness. The globalization of Chinese enterprises might gradually eliminate the "valuation discount," potentially reversing it to a "premium."

UBS strategists, including James Wang, noted on Feb. 12 that based on past experiences with 4G, 5G, and cloud computing, the rally in Chinese stocks driven by DeepSeek may still have room to grow.

Goldman Sachs highlighted that as of Feb. 7, Chinese equities became the market with the largest nominal net buying volume in its global prime brokerage business this year.

Wall Street's optimism contrasts sharply with the caution seen months ago. Amid the short-term surge in Chinese assets, investors should remain aware of uncertainties surrounding Trump-era tariffs and the potential for AI development to fall short, leading to a market correction.

Source: Yahoo Finance, Bloomberg

by moomoo News Olivia

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