Analysts' forecasts boosted Alibaba's quotations. Will the rally continue?

Quotes of the Chinese holding company Alibaba rose on the trades in New York and Hong Kong after Morningstar and Morgan Stanley raised their forecasts on these securities. They, according to analysts, look undervalued. The driver for the company's capitalization is its investments in artificial intelligence - and even after the September rally of 50% Wall Street expects further growth.

American depositary receipts and Hong Kong shares of Chinese giant Alibaba rose in price on September 29 after two teams of analysts noted the improvement in the growth prospects of the cloud business and AI-direction of the company. In Hong Kong quotes Alibaba jumped by 4.3%, on the premarket in New York, the company's securities added 3.7%.

Morningstar analysts raised the fair value of Alibaba's depositary receipts and shares by 49% to HK$267 and HK$260, respectively, Bloomberg reports. This valuation implies a potential upside of 45.7% and 49.8%, respectively. Analysts at Morgan Stanley raised the target by 21% to $200, which is 12% below current quotes.

Last week, Alibaba held its Apsara conference, where it announced increased investment in AI and a new partnership with Nvidia. On that day, the securities of the holding reached the maximum for four years. As a result, quotations showed growth of almost 50% since early September, the best result in the Hang Seng Tech index, Bloomberg points out.

Alibaba shares appear undervalued, says Morningstar senior analyst Chelsea Tam. Increased investment in overseas data centers, competitive performance, widespread use of open source AI models and improvements to the company's own chips are supporting cloud revenue growth, Morningstar notes.

Morgan Stanley analysts led by Gary Yu noted that they are "becoming increasingly positive on Alicloud's outlook" following the Apsara conference. "We raise our cloud business growth forecast to 32% in fiscal 2026 and 40% in 2027, driven by capex growth, AI model refresh, strategic partnerships and accelerated international expansion," they wrote.

After Alibaba's conference, several leading investment houses raised their targets on its securities: in addition to Morningstar and Morgan Stanley, Citigroup, Baird and Bank of America did the same. Citigroup, for example, increased its valuation from $187 to $217, noting that the company's cloud business and AI services could generate more revenue than previously expected, The Barron's writes.

Alibaba now has 49 ratings equivalent to a buy recommendation out of 53, MarketWatch data shows. At the same time a month ago there were two less. Three analysts advise to keep the securities of the Chinese holding in the portfolio, and only one suggests selling.

The rally in Alibaba shares coincided with the return of its co-founder Jack Ma, who, after a long pause, began to reappear actively in the public field. This increased investor confidence in the future strategy of the holding company and the prospects of the country's technology sector as a whole, Bloomberg noted.

Ma went into the shadows in 2020 after a high-profile speech in which he publicly criticized China's financial system, calling state-owned banks "pawnshops." Just days later, regulators blocked the IPO of the businessman's fintech company, Ant Group, and then launched a campaign to tighten controls on the entire tech sector. As a result, Alibaba's capitalization fell by almost $700 billion.

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