Alibaba shares soared nearly 20% thanks to AI and e-commerce. How much longer do they have to rise?

Quotes of Chinese technology giant Alibaba made the most significant intraday jump on a wave of optimism about its cloud business. Investors were encouraged by revenue growth data due to strong demand for AI services. Analysts at Western banks believe that this is far from the limit and have raised their target forecasts for the company's stock.

Alibaba shares soared in price by 19% at trading in Hong Kong on September 1 - up to 137.5 Hong Kong dollars ($17.6). The company's capitalization thus increased by more than $50 billion. According to Bloomberg, this is the sharpest intraday jump in Alibaba quotes since November 2022.

The rally in Hong Kong followed a 13% jump in Alibaba's American depositary receipts - to $135 per paper - last Friday following the release of its financials. The company said revenue at its cloud division rose 26% in the April-June period, driven by strong demand for AI services. Alibaba CEO Eddie Wu called the AI plus cloud services division one of the tech giant's two main growth engines, along with e-commerce.

Even after such a jump, Alibaba shares still have a noticeable potential for growth in the coming months, according to analysts of Japanese investment banks Nomura and Daiwa. The former raised its target price for Alibaba's depositary receipts from $152 to $170 over a 12-month horizon, The Wall Street Journal reported. According to the bank's analysts, in the long term, Alibaba's "strength" lies in its retail express delivery service.

Daiwa, another Japanese investment giant, improved its full-year target for the company's shares to HK$180 from HK$170. The rate of profitability improvement in the express delivery segment was higher than expected, and revenue growth from cloud services should accelerate in the coming quarters, analysts wrote.

That said, it's not e-commerce successes but the AI factor that helps explain why Alibaba's stock has jumped 66% this year, while the quotes of its more trade-dependent rivals JD.com and Meituan have gone negative, Bloomberg writes. Morgan Stanley analyst Gary Yu called the investment in Alibaba the best bet in China for an infrastructure provider to implement AI solutions.

It remains to be seen whether Alibaba can turn AI into a profitable business in the face of growing competition: Chinese tech giants from Baidu to Tencent are releasing and improving AI models at a furious pace, increasing pressure on the company, Bloomberg adds.

There is no talk of a large-scale overflow of investment capital into the Chinese technology sector, but the divergence in dynamics is obvious, according to Saxo Bank: while Western tech giants are preoccupied with geopolitics and valuations, certain segments of Chinese technology are once again gaining momentum - not due to hype, but due to real revenue growth in AI and cloud computing.

This article was AI-translated and verified by a human editor