One of the fun parts about investing is finding companies that aren’t meeting their potential and seizing the opportunity for dramatic growth. Alibaba (NYSE:BABA) stock is one of those investments that fits the bill.
The Chinese e-commerce company is a force to be reckoned with. Already it has the top platform in China, earning its reputation as the country’s equivalent to Amazon (NASDAQ:AMZN).
Add to that Alibaba’s commitment to cloud growth, and its potential as a top AI stock and you have a company that has an extremely high ceiling.
Happily, investors these days can get Alibaba stock at a discount. Its shares are down 7% so far this year, thanks to U.S-China trade war, as well as the aftermath of the novel coronavirus that began in China.
Here are three good reasons to consider Alibaba’s stock now.
Alibaba Is Committed to the Cloud
You know, surely, about Amazon Web Services (AWS), the powerful cloud computing segment of Jeff Bezos’ empire that powers websites around the world. AWS provided $10 billion in revenue to Amazon in just the first quarter of 2020, and accounted for 13.5% of Amazon’s total revenue.
Well, Alibaba has its own answer to AWS, and its cloud growth is impressive in its own right. Alibaba’s cloud business brought in $1.5 billion of revenue last quarter, with a growth rate of 62%.
The company announced last month that it plans to invest $28 billion over the next three years into its cloud computing division. Considering that Alibaba already has more than 50% of the Chinese market share in the cloud, that kind of investment should help it keep its advantage — and keep those profits flowing.
It’s Already a Great AI Stock
According to Kai-Fu Lee, one of the top minds in the artificial intelligence space, China is working hard to dominate the AI market. It’s not just a priority for companies like Alibaba, JD.com (NASDAQ:JD) and Baidu (NASDAQ:BIDU), AI development is a top priority from Beijing’s government.
Alibaba already has a huge advantage just in gathering data — its retail marketplaces boast 824 million mobile monthly average users. It uses AI-enabled tools to handle that business, including shopping assistants and AI-enabled smart speakers.
Alibaba is also creating its first AI computer chips as it gets into the semiconductor technology business. The Hanguang 800 chips reportedly cut the time for computing tasks from an hour to just minutes, and are being used in Alibaba’s own cloud computing products.
The Company Rules the E-Commerce Space
Of course, nothing is as powerful for Alibaba right now than its e-commerce efforts. Last year, the company had 711 million active consumers on its online marketplaces, giving it more than 55% of the market share in China.
And the Chinese market is just growing bigger and faster. China’s e-commerce market is expected to be worth about $840 billion by next year.
While the Chinese economy was crippled earlier this year by the coronavirus outbreak, it also has the advantage of being the first region in the globe to emerge from the pandemic. Chinese businesses and regions have already opened back up.
As business and consumer spending resumes, Alibaba will see a big portion of that business through its e-commerce platform.
In fact, KeyBanc analyst Hans Chung recently raised his price target on Alibaba stock from $248 to $255, citing a better-than-expected recovery in China’s e-commerce in March.
The Bottom Line on Alibaba Stock
Alibaba is expected to report earnings next week, and because of the effects of the coronavirus, I’m not expecting blistering numbers. The consensus estimate from analysts is earnings per share of 59 cents, versus 88 cents per share a year ago.
However, I’ll be much more interested in what Alibaba has to say about forecasts for the second half of the year, when I expect the Chinese economy to be even stronger than it is now.
Alibaba stock gets an ‘A’ quantitative grade in my Portfolio Grader tool, and it has an overall grade of ‘B’ right now.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
