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The Jump in Alibaba Group Holding Ltd (BABA) Stock Is Just Beginning

A new report says AliCloud is about to become a much bigger slice of BABA pie


Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL),, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) are companies that have become known for their large and growing cloud computing businesses. We don’t think of Alibaba Group Holding Ltd (NYSE:BABA) that way. But according to a new report, the Chinese e-commerce giant could make the biggest cloud-induced leap in the coming years, which could be a major catalyst for Alibaba stock.

The Jump in Alibaba Group Holding Ltd (BABA) Stock Is Just Beginning
Source: Shutterstock

The report by Morgan Stanley said that BABA stock could gain the most market share in the increasingly crowded cloud-computing market in the coming years.

The bank expects Alibaba’s cloud revenue from its AliCloud platform to reach $10 billion by 2021, 10 times the $1 billion it sold last year. For perspective, that was 6.3% of the company’s total sales last year. In five years, AliCloud is expected to comprise 18% of BABA’s total sales.

AliCloud Is a Big Part of Alibaba Stock’s Potential

With the company’s sales slowing the last few years — from 215% growth in 2012 to 56% growth in 2014 to 29% last year — an extra $9 billion tacked on to its top line over the next five years would be a game changer. It’s just a report, and it’s based largely on Morgan Stanley’s theory that the cloud “is a transformational technology like electricity,” and that its usage should broaden in the coming years. If that’s the case, then cloud stocks like BABA stock are “widely undervalued today,” the report said.

So, add that to the long list of catalysts for a stock that’s already up 38% in the last year, including a 20% run-up since late December. Alibaba stock took a hit in 2015 when the Chinese stock market went belly up, falling as low as $57 in September of that year. In the 18 months since, it has nearly doubled.

Meanwhile, sales and earnings are projected to perk up again this year: Analysts anticipate 54% top-line growth, which would be the highest in three years, and 43% earnings-per-share growth. And those numbers don’t include much help from AliCloud, which is actually expected to decrease (to 4%) as a percentage of sales this year before really taking flight starting in 2018.

Given its dominance in China’s e-commerce market — it’s essentially the Chinese Amazon, right down to a recent acquisition of a major online video-streaming entity — Alibaba stock was already a strong long-term investment candidate for any portfolio. Now that BABA, like Amazon before it, is transforming into something much more than an online marketplace, it could be just scratching the surface of its immense potential. The AliCloud will be a huge part of that transformation.

BABA Is AMZN … 15 Years Ago

Fifteen years ago, AMZN was merely a place where people could go online and buy books, CDs and electronics. Then it launched Amazon Web Services in 2002, and the stock took off, tripling within a year. In 2010, the company starting producing original content for online streaming; AMZN stock has risen nearly 8-fold since.

Put simply: Alibaba is where Amazon was 15 years ago. Thus, I think BABA stock is in the very early innings of a sustained, multi-decade rally. Buy it now and thank me in 15 years.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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