Life has come full circle for Chinese stocks in general and Alibaba (BABA) in particular. After China's brutal tech crackdown in 2020 and 2021, several analysts characterized Chinese stocks as “uninvestible.” The label wasn’t entirely unwarranted, as China targeted emerging sectors, such as edtech companies, and policy uncertainty made it challenging to value Chinese companies. Alibaba was perhaps the face of the crackdown, as the company’s co-founder, Jack Ma, was seen to be getting too big for his boots ...

Core Insights - Alibaba's shares surged 18.5% in Hong Kong, driven by positive investor sentiment regarding its advancements in AI and core e-commerce despite challenges in the food-delivery sector [1] - The company's market capitalization reached HK$2.7 trillion ($346.5 billion) following a strong quarterly performance [2] - Alibaba's cloud computing division reported a 26% revenue increase to 33.4 billion yuan ($4.7 billion), with AI-related product sales showing triple-digit year-on-year growth [3] Financial Performance - Alibaba's operational income decreased by 3% year-on-year to 35 billion yuan due to competitive subsidies in the food-delivery market, but net income rose 76% to 42.4 billion yuan, aided by equity investment value changes [5] - Total revenues increased by 2% year-on-year to 247.7 billion yuan [5] Market Trends - Analysts predict accelerated cloud revenue growth over the next two years due to strong demand for AI-related services [4] - Investment in food delivery and quick commerce is expected to enhance sales, as users attracted by coupons are directed to Alibaba's Taobao app [6] User Engagement - Taobao experienced a 25% year-on-year increase in monthly active users in early August, with 978 million users reported in May [7] - Customer management revenue, from online marketing services, rose 10% in the June quarter to 89 billion yuan, with expectations for continued growth as the user base expands [8]

Group 1: Industry Overview - The Zacks China Technology thematic screen focuses on China-based technology companies listed on the U.S. stock market, including internet services, batteries, e-commerce, online advertising, online media, online gaming, and social networking platforms [1] - China Tech refers to technology companies in China that are leaders in their fields, with a focus on reducing reliance on Western technology [2] - Key technology areas gaining prominence include semiconductors, artificial intelligence, high-performance computing, industrial robots, data centers, satellites, quantum computing, and wireless broadband [2] Group 2: Company Performance - Alibaba (BABA) shares have gained over 25% in the last month, outperforming the S&P 500's 20% gain, with a bullish EPS outlook for the current and next fiscal year [3] - Alibaba's AI-related product revenue has maintained a triple-digit percentage year-over-year growth rate for the seventh consecutive period, while its Cloud Intelligence Group saw 18% year-over-year growth [4] Group 3: Other Notable Stocks - Other top-ranked stocks returned by the Zacks China Tech screen include Microvast (MVST), GDS Holdings (GDS), and Kingsoft Cloud (KC) [5][7]

Investment Rating - The report maintains a "BUY" rating for Alibaba with a target price of US$155.5, reflecting a potential upside of 25.5% from the current price of US$123.90 [1][2]. Core Insights - Alibaba's 4QFY25 results showed total revenue of RMB236.5 billion, a 6.6% year-over-year increase, and adjusted EBITA of RMB32.6 billion, up 36% year-over-year, indicating strong earnings growth across business segments [1]. - The report highlights the potential for accelerated cloud revenue growth, driven by investments in infrastructure and R&D, alongside solid performance in the Taobao and Tmall Group [1][5]. - Adjustments to revenue forecasts for FY26-27E reflect a 5% decrease due to the deconsolidation of Sun Art and increased investments in instant commerce, but the long-term outlook remains positive, particularly in the AI sector [18][19]. Financial Performance Summary - **Revenue and Profitability**: - FY25 total revenue reached RMB996.3 billion, with a projected FY26 revenue of RMB1,041.0 billion, reflecting a 4.5% year-over-year growth [6]. - Adjusted net profit for FY25 was RMB157.9 billion, with an expected increase to RMB166.8 billion in FY26 [6]. - **Segment Performance**: - Taobao and Tmall Group generated RMB101.4 billion in revenue for 4QFY25, up 9% year-over-year, with customer management revenue (CMR) at RMB71.1 billion, up 12% year-over-year [7][8]. - Cloud Intelligence Group (CIG) reported revenue of RMB30.1 billion, an 18% increase year-over-year, driven by strong demand for digitalization and AI-related products [12][13]. - AIDC revenue grew 22% year-over-year to RMB33.6 billion, with management targeting profitability in FY26 [10][11]. Valuation and Forecast - The new target price of US$155.5 translates to a 15.7x FY26E PE (non-GAAP), reflecting a SOTP-based valuation approach [22][25]. - The report indicates a decrease in the target price from the previous US$157.00, primarily due to adjustments in revenue forecasts and competitive pressures [2][22].

Investment Rating - The report assigns an "Overweight" rating to Alibaba Group Holding, indicating a positive outlook for the stock's performance relative to its industry [3]. Core Insights - The report highlights that Alibaba's 4QFY25 results exceeded expectations in terms of core metrics, while cloud revenue was in line with projections [1][6]. - The overall industry view is considered "Attractive," suggesting favorable conditions for investment in the sector [3]. Financial Performance Summary - Total revenue for 4QFY25 was RMB 236.454 billion, reflecting a year-over-year increase of 6.6% but a quarter-over-quarter decline of 15.6% [2]. - Income from operations was RMB 28.465 billion, showing a significant year-over-year increase of 92.8% but a quarter-over-quarter decrease of 30.9% [2]. - Adjusted EBITA for 4QFY25 was RMB 32.616 billion, which is a 36.1% increase year-over-year, beating Morgan Stanley's estimates by 6% [6]. - Non-GAAP net profit was RMB 29.847 billion, representing a year-over-year increase of 22.2% but a quarter-over-quarter decline of 41.6% [2]. Segment Performance - The Taobao & Tmall Group generated revenue of RMB 101.369 billion in 4QFY25, a year-over-year increase of 8.7% but a quarter-over-quarter decline of 25.5% [2]. - The Cloud Intelligence Group reported revenue of RMB 30.127 billion, reflecting a year-over-year growth of 17.7% [2]. - The Alibaba International Digital Commerce Group achieved revenue of RMB 33.579 billion, marking a year-over-year increase of 22.3% [2]. Valuation Metrics - The price target for Alibaba is set at US$180.00, indicating a potential upside of 34% from the current price of US$134.05 [3]. - The report projects revenue growth to reach RMB 1,081 billion by FY26, with net income expected to rise to RMB 162 billion [3].