Despite the obvious headwinds associated with the U.S.-China trade war, a strong case can be made for Alibaba Group (NYSE:BABA). As has become common knowledge, the internet and e-commerce giant is the Amazon (NASDAQ:AMZN) of China. Thus, buying Alibaba stock for the long haul seemingly makes sense.
As our own Laura Hoy recently pointed out, Alibaba Group has aggressively focused on its growth strategy. Better yet, this isn’t some ambiguous concept that corporate PR teams like to throw out to capture investor dollars. Instead, some real meat is on the table, boosting the long-term narrative for BABA stock.
First and foremost, Alibaba Group is finally making serious inroads into the all-critical U.S. market. Currently, Hoy writes that “nearly a third of Alibaba’s buyers come from the U.S. while 95% of sellers are based in China.” However, the Chinese e-commerce platform has recently opened the door for American sellers to jump on the bandwagon. In my opinion, this is the most significant development for Alibaba stock to come in a long time.
Essentially, the move allows Alibaba Group to steal market share from Amazon. Merchants now have a viable channel to sell to the top two economies in the world. Yes, it would hurt Chinese merchants in the nearer term. But this strategy expands the scope of BABA stock. Eventually, we may be talking about Amazon being the Alibaba of America.
The second catalyst for Alibaba stock is the underlying company’s cloud infrastructure. Management scored a partnership with Salesforce.com (NYSE:CRM), further solidifying its digital ambitions. It appears that the classic tech disrupter is about to get a taste of its own medicine.
Alibaba Stock Will Absorb Amazonian Problems
With all these massive drivers for BABA stock, everyone should at least consider staking a position. Admittedly, I’m not the biggest fan of Chinese stocks, but I see real value here.
So, what keeps me from taking that plunge? It comes down to politics. If Alibaba stock really does become the Amazon of China, it will also assume Amazon’s problems.
What’s problems, you ask? Namely, it’s that Amazon has become too successful. At the end of the day, we are a consumer capitalist economy. In other words, we love big business, but only in the context of broader and robust competition. What we don’t like are monopolies.
The Trump administration has accelerated that sentiment. For instance, the president criticized the terms of the Joint Enterprise Defense Infrastructure proposal, claiming that the $10 billion cloud-computing contract unfairly favored Amazon. Another big player in this deal is Microsoft (NASDAQ:MSFT).
Over the years, Trump has had a war of words with Amazon for understandable reasons. Ultimately, the federal government doesn’t want any one commercial entity to become too strong and influential.
But here’s the big long-haul challenge for BABA stock: if the Feds are scrutinizing their own companies, how dimly will they view Chinese firms? After all, the government makes enough noise regarding anti-competitive behaviors. Inevitably, China’s flagship company will face severe opposition before they can even get to that point.
Plus, I’ve argued many times before that we’re in the middle of a tech cold war. Our international adversaries have made it clear they wish to unseat the U.S. from its tech dominance. Thus, I don’t see this conflict against Amazon lasting too much longer. At the same time, we’re not going to do any favors for Alibaba stock.
Democrats Won’t Help BABA Stock, Either
Of course, much of my hesitation toward Alibaba stock revolves around the Trump administration’s nationalistic stance. But don’t think that the 2020 election will provide an easy tailwind for the Chinese tech firm.
First, President Donald Trump will be very difficult to beat. Despite all the criticisms leveled against him, he has one ace up his sleeve: a robust economy. Nothing sways voters like having greenbacks in their wallets.
Even if that circumstance changed for the worse, consider that a democratic president must preside over the entire country. Playing nice with China is very much political suicide. Therefore, at least when it comes to the Asian juggernaut, both left and right have consensus.
Logically, this doesn’t favor BABA stock. While the underlying company has drivers for expansion, its growth is limited – at least in the U.S. – by political factors. Thus, Alibaba’s most eyeballed market will also be the most difficult, if not impossible to penetrate.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.