China's Bull Market Keeps Growing. 4 Reasons to Buy Alibaba Like There's No Tomorrow.

While the U.S. stock market has been under pressure, the ADRs (American depositary receipts) of Chinese stocks have suddenly become red hot. And there could be a lot more upside ahead.

One of the most intriguing Chinese stocks right now is Alibaba (NYSE:BABA). Let's look at four reasons to buy the stock like there is no tomorrow.

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1. Alibaba is leading the way with AI

Despite export restrictions on advanced semiconductors, Chinese companies have been making great strides in artificial intelligence (AI), and Alibaba is one of the leaders in the space. The company has said that its newest Qwen 2.5 model outperforms the competition, including models from Chinese rival DeepSeek and U.S. companies such as Meta Platforms and OpenAI.

In addition to its foundation model, Alibaba also offers several task-specific open-source models as well. In the fall, it launched over 100 of these models, including ones designed specifically for things like mathematics and coding. Earlier this month, meanwhile, it introduced a new AI assistant powered by its new QwQ-32B AI reasoning model.

Alibaba's AI prowess is starting to show up in its Cloud Intelligence results, which is its cloud computing segment. Last quarter, segment revenue grew 13% despite the company continuing to let lower margin contract revenue roll off, as AI-related revenue once again more than doubled. Profitability, meanwhile, soared with segment-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumping 33%.

In addition, the company is beginning to partner with other leading tech companies. Apple will use Alibaba's AI model to power its Apple Intelligence solution in China, which is a big win. Meanwhile, it recently teamed up with Chinese AI start-up Manus AI to collaborate on agentic AI, with which AI agents can go out and perform tasks for you.

Image source: Getty Images.

2. Alibaba is turning around its core e-commerce businesses

In addition to its AI opportunities, Alibaba is seeing signs that it is turning around its e-commerce business, which consists of leading platforms Tmall and Taobao. The former is an e-commerce marketplace where established brands sell their merchandise, while on the latter, both individuals and businesses can sell their goods.

These businesses had been under pressure due to a lagging Chinese economy and competitive pressures. However, the company invested heavily in its e-commerce segment to first help boost its gross merchandise value (GMV), which is the total value of goods sold through its platforms, and then better monetize its platform. This came in the form of adding a small software service fee, promoting its 88VIP premium memberships, and developing a new AI marketing tool called Quanzhantui.

Last quarter, these efforts started to bear fruit, with third-party revenue climbing 9% and overall segment revenue up 5%. Segment EBITDA, meanwhile, edged up 2%.

This turnaround is still in its early days, but clear progress has been made.

3. Emerging businesses offer Alibaba some good upside

Alibaba also operates a number of emerging businesses, of which its International commerce segment (AIDC) is the farthest along. This consists of its AliExpress cross-border business, which connects Chinese sellers to overseas buyers, as well as Trendyol, which is focused on local merchants in Turkey and the Middle East. It has also been building out its Cainiao logistics business to better serve AliExpress and shorten delivery times to make the platform more competitive.

Its AIDC segment has been growing quickly, with revenue jumping 32% last quarter. However, the segment remains a drag on profitability, with negative EBITDA of $678 million last quarter, as the business has still not reached scale.

However, management has said it expects the segment to turn its first profit within the next fiscal year. Flipping this business to profitability would be a very nice boost to the company's earnings growth moving forward.

4. Alibaba's stock is attractively valued

In addition to the opportunities in front of it, Alibaba's stock remains attractively valued despite the big jump in its share price this year. The stock is up more than 60% year to date as of this writing.

It trades at a forward price-to-earnings ratio (P/E) of about 15 for fiscal 2026 analyst estimates. That's about half the valuation of its closest U.S. counterpart, Amazon. Alibaba also has $23.1 billion in cash and short-term investments, as well as $47.4 billion in equity and other investments on its balance sheet, which accounts for over 20% of its market cap.

Data by YCharts.

While I don't think Alibaba should have the same valuation as Amazon, I think there is room to close the gap a bit. Meanwhile, the company has a lot of potential to begin accelerating both revenue and earnings growth in the near future, making it a solid option to buy.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alibaba Group. The Motley Fool has positions in and recommends Amazon, Apple, and Meta Platforms. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.