Alibaba Stock Remains a Strong Buy Despite Growing U.S.-China Tensions

The big tech rally this year went beyond America as the value of Asian companies like Alibaba (NYSE:BABA) leaped tremendously. Alibaba stock price jumped 24% in July and generated some juicy returns for investors this past year.

BABA Stock Weakened Before the Coronavirus and Looks Worse Now

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China-based Alibaba has the ability to grow at an unprecedented rate due to its large customer base in the U.S and abroad. That gives the company a competitive edge over its U.S-based peers and is one of the many reasons for increasing tensions between the two nations.

Fueled by the coronavirus pandemic, Alibaba’s strong market position  has enabled the company to weather the economic turbulence with ease. This stock remains a  great name to buy in any investing environment.

Alibaba Stock Rides the E-Commerce Surge

The pandemic has greatly boosted the results of companies in the e-commerce industry and Alibaba, which controls nearly two-thirds of this sector in Asia, was one of the major beneficiaries of this trend. The company’s online marketplace, Taobao, reported an 88% increase in the number of merchants on its platform, as more companies took their businesses online this year.

That was amplified by the growing middle-class population in China which is expected to hit 550 million by 2022. For the sake of comparison, that is higher than the entire U.S population of 330 million. Thanks to its growing addressable market, Alibaba was able to generate revenue of $16.5 billion, up 22% from the previous year.

Alibaba’s growth can accelerate in the future. Experts believe that  e-commerce sales in China will exceed $4 trillion by 2023. Given Alibaba’s market share which exceeds 50%, the company has a huge competitive advantage over its peers.

Although Alibaba had high costs and low profit margins in Q2, the evolution of the digital landscape in Chine and abroad will keep this company in the spotlight for many years. Alibaba is a safe stock to buy in today’s volatile environment.

Alibaba’s Cloud Business Grew

Alibaba’s digital footprint goes well beyond its e-commerce platform. The company’s cloud segment, Alibaba Cloud, provides an expansive range of services and has grown tremendously this year. Its cloud revenue increased by 58% year-over-year.

Alibaba plans to expand its cloud services with a number of initiatives. In late July, the company announced that it would be adding three large,new data centers. The systems will be operated on liquid cooling technologies which could reduce their energy use by more than 70%.

Moreover, Alibaba has also committed to spending $28 billion on research and development related to its cloud operating systems and servers. Alibaba Cloud is the largest cloud-infrastructure platform in China and is the company’s highest revenue generator aside from its e-commerce business.

Alibaba’s stock dipped in 5% in early August after the U.S. government announced a ban on two China-based apps, TikTok and We Chat. While that move is likely to create tensions between China and the U.S, Alibaba’s expanding market and rising revenue still make this stock an attractive investment.

The Bottom Line on Alibaba

Alibaba currently has a market capitalization of $683.8 billion and hopes to increase its valuation in the next few years. The company’s goal is to support 10 million businesses on its platform, serve more than 2 billion customers and create 100 million jobs by 2036. While those numbers seem ambitious, the company is well on its way to meeting those targets.

In 2020, Alibaba’s gross merchandise grew to more than $1 trillion which is a huge feat considering the total volume of consumer goods sold in Chine in 2019 was $6 trillion. The company also boasts a price-earnings multiple of 29, which will enable it to eventually pay dividends.

Although the ban on TikTok and WeChat could hurt Alibaba stock in the short-term, the future prospects of the company are still promising. With a diverse range of services like the cloud and its e-commerce platform that caters to a growing global market, Alibaba stock remains a worthy investment in today’s volatile economy.

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.

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