Value & Momentum Portfolio cites AI transition as key driver for Alibaba re-rating
The investment firm’s latest thesis points to a 35% upside target as Alibaba shifts from legacy e-commerce to an AI-first infrastructure model, though institutional ownership has cooled in the first quarter.
Value & Momentum Portfolio has published a bullish investment thesis on Alibaba Group Holding Limited (BABA), arguing that the Chinese technology giant is undergoing a fundamental structural shift. According to the firm’s Substack newsletter, Alibaba is transitioning from a legacy e-commerce marketplace into a vertically integrated AI and cloud utility platform. This re-rating narrative centres on the company’s cloud and AI segment, which the firm identifies as the primary catalyst for future valuation growth.
Data from Yahoo Finance indicates that Alibaba’s shares traded at $115.38 as of June 10, carrying trailing and forward price-to-earnings (P/E) ratios of 17.74 and 18.08 respectively. The investment firm notes that while the traditional retail model faces competitive pressure from rivals such as Pinduoduo and ByteDance-led platforms, the cloud and AI division is expanding rapidly. This segment is reported to be growing at a rate of 34–36%, supported by increasing enterprise adoption and recent price increases for AI compute services.
The thesis highlights several structural advantages underpinning this transition. Alibaba’s proprietary Qwen large language model and the development of its T-Head chips are cited as reinforcing a cost advantage. Additionally, the company’s 88VIP ecosystem, which comprises over 59 million high-value users, is viewed as a mechanism to strengthen customer retention and monetisation capabilities. The firm argues that current free cash flow pressure, driven by heavy reinvestment in AI and quick commerce, is cyclical rather than indicative of structural deterioration.
Valuation metrics suggest significant upside potential. Analyst consensus targets are near $190, implying approximately 40% upside from current levels. A base-case scenario from Value & Momentum Portfolio targets $185, representing roughly 35% upside, predicated on cloud margins expanding from 9% toward 12% as AI monetisation scales. Strategic optionality is further bolstered by Alibaba’s 33% stake in Ant Group and a $19 billion share buyback program scheduled through 2027.
Despite the bullish outlook, institutional interest has waned. The firm notes that Alibaba is not among the 40 most popular stocks among hedge funds. Data shows that 102 hedge fund portfolios held BABA at the end of the first quarter, a decline from 115 in the previous quarter. Value & Momentum Portfolio acknowledges this disinterest, stating that while the risk and potential of Alibaba are recognised, the firm prefers other AI stocks that may offer higher returns over shorter timeframes.
