Alibaba: Geopolitical Impact Overhyped

Core Thesis - Alibaba (NYSE:BABA) is considered massively undervalued based on intrinsic value calculations, despite significant geopolitical risks associated with the U.S.-China tensions [2] - The stock is viewed as a high-risk, high-reward investment, meriting a Strong Buy rating at its current price [2] Company Comparison - Alibaba is often referred to as the "Amazon of China," with its flagship businesses in e-commerce and cloud services, although it lags behind Amazon in global market share [3] - The cumulative gross merchandise value (GMV) of Alibaba's Taobao and Tmall exceeds $1 trillion, which is nearly 30% larger than Amazon's GMV [3] - Alibaba's profitability ratios, such as gross profit margin (37.70% vs. Amazon's 47.59%) and EBIT margin (14.74% vs. Amazon's 8.02%), indicate higher efficiency in certain areas [6][7] Market Position and Growth Potential - Alibaba leads the domestic cloud market in China, positioning itself favorably in the growing AI industry, which is projected to represent 30% of the global market by 2035 [10] - The Chinese manufacturing sector, which accounts for 35% of global output, is expected to drive demand for AI in manufacturing, with a projected CAGR of 44.2% by 2030 [10] Geopolitical Context - The geopolitical risks surrounding Alibaba are believed to be overestimated, drawing parallels to historical events like the Cuban Missile Crisis, which ultimately ended in peace [11] - Economic ties between the U.S. and China are strong, suggesting that the current tensions may resolve in the foreseeable future [11] Valuation Analysis - A discounted cash flow (DCF) valuation indicates Alibaba's intrinsic value at approximately $676.4 billion, nearly four times its current market capitalization of $180.86 billion [18] - Revenue forecasts from Wall Street analysts are conservative, projecting single-digit growth rates by FY 2034, with a perpetual growth rate assumed at 2% [17][18] Summary of Investment Thesis - The potential upside for Alibaba is significant, particularly given its dominance in the global e-commerce sector and its strong prospects in the Chinese AI market [25]