Since January 29, $Alibaba (BABA.US)$ Since the release of the Qwen 2.5 flagship model on January 29, the company's stock price has risen nearly 30%; meanwhile, since the sharp decline caused by DeepSeek Night on January 24, Alibaba has increased by nearly 45%, significantly outperforming the Large Cap. $NVIDIA (NVDA.US)$ Since the sharp decline caused by DeepSeek Night on January 24, Alibaba has increased by nearly 45%, significantly outperforming the Large Cap.

On February 13, JPMorgan analysts Yao Cheng, Zhang Zhihong, and Chen Qi released a Research Report that provided an in-depth analysis of the valuation of Alibaba Group. The analysts believe that Alibaba's stock price still has room for further increases, mainly benefiting from three major factors:

The adjustment of Alibaba Cloud's valuation multiple, the upward revision of cloud business revenue expectations, and the improvement in profit expectations for China’s e-commerce business.

Based on these factors, JPMorgan maintains a "Shareholding" rating for Alibaba, setting a Target Price of 120 HKD for Hong Kong stocks and 125 USD for US stocks (when the JPMorgan report was published, Alibaba's US stock was at 118.33). The analysts emphasized that Alibaba remains their preferred stock in the Bullish China Internet Sector.

Yesterday, Alibaba's US stock rose by 4.34%, based on a stock price of 124.73 USD, leaving a 0.22% increase potential to JPMorgan's Target Price.

The revaluation space for Alibaba Cloud is enormous.

The report believes that the current market valuation of Alibaba Cloud is significantly low. Based on JPMorgan's forecast of Alibaba Cloud's revenue, the stock market reflects that Alibaba Cloud's expected enterprise value/revenue multiple for 2025 is only 4 times, which is on par with Kingsoft Cloud, regarded as a "smaller player" in China's cloud market.

Analysts indicate that as the leader in China's cloud market, Alibaba Cloud's valuation should at least be comparable to the average level of publicly listed SaaS cloud service providers in the USA:

"Based on an average valuation multiple of 6.5 times for USA SaaS companies, Alibaba Cloud's value could reach 115 billion USD, which would elevate Alibaba's overall valuation to 320 billion USD, allowing for a 14% increase in stock price."

Furthermore, if calculated at Microsoft's valuation multiple of 10.5 times, Alibaba Cloud's value could reach 185 billion USD, bringing Alibaba's corresponding market cap to 391 billion USD. This means that the valuation adjustment completely driven by Alibaba Cloud could result in up to 39% increase in stock price. Although analysts believe this benchmarking may seem optimistic, it also reflects the tremendous elasticity of Alibaba Cloud's valuation.

Dual engine driving of cloud business and e-commerce business.

In addition to the adjustment of valuation multiples, the report also points out two other major drivers for Alibaba's stock price increase: upward adjustment of cloud business revenue expectations and improvement in e-commerce business profit expectations.

In terms of the cloud business, JPMorgan currently conservatively forecasts a revenue growth rate of 10% for Alibaba Cloud in the 2026 fiscal year, but believes there is still a potential increase of 10 percentage points. According to a 6.5 times valuation multiple, for every 2 percentage point increase in Alibaba Cloud's revenue growth rate, Alibaba's stock price will rise by 1%.

Regarding the e-commerce business, analysts expect Alibaba's adjusted EPS for the 2026 fiscal year to be 12% higher than the consensus expectation in the market. This is mainly due to the improvement in the domestic e-commerce fundamentals, and JPMorgan is bullish on the profit outlook of e-commerce.

For the outlook of the third quarter of fiscal year 2025, Analysts expect that the GMV growth of Taobao and Tmall will improve compared to the previous quarter, customer management revenue growth will accelerate, and the adjusted EBITA of Alibaba Group is expected to return to positive growth.

However, the report also emphasizes that considering the stage of the investment cycle that Alibaba is in (fiscal year 2025 is the first year of a three-year investment cycle for Alibaba Group), Alibaba may currently focus more on the growth of GMV and customer management revenue rather than short-term profits. But in the long term, as market share stabilizes and monetization capabilities improve, along with cost control, the company's profitability is expected to further enhance.

Editor/rice