Two 59%+ winners, four above 25% in Aug – How this AI model keeps picking winners
On Friday, Mizuho (NYSE:MFG) Securities adjusted its outlook on Alibaba (NYSE:BABA) Group Holding Limited (NYSE: BABA), raising the price target from $140 to $170 while maintaining an Outperform rating on the company’s shares. Currently trading at $135.63 with a market capitalization of $306 billion, InvestingPro analysis suggests the stock is undervalued relative to its Fair Value. The revision reflects increased confidence in Alibaba’s artificial intelligence (AI) strategy and its potential to drive future revenue growth and profitability.
Mizuho’s analysis highlighted three main points supporting the more bullish stance on Alibaba. Firstly, the firm acknowledges Alibaba’s robust foundation for AI investment, which includes scaling its model to achieve artificial general intelligence (AGI), developing a platform for model APIs to expedite application deployment for clients, and ultimately delivering direct end-user solutions across various industries.
Secondly, the expectation is that Alibaba’s AI investments will enhance internal productivity, leading to better product recommendations and higher conversion rates. The company’s strong financial health score of "GOOD" from InvestingPro and impressive year-to-date return of 60% support this optimistic outlook. Additionally, there is an anticipation of reduced losses from businesses outside of Taobao, Tmall, and Alibaba’s core commerce segment, collectively referred to as TTG, which currently account for 11% of EBITA. These segments are projected to potentially reach a break-even point within two years.
Lastly, Mizuho has increased its forecast for Alibaba’s fiscal year 2026 cloud revenue growth from 13% to 17% year-over-year. This adjustment stems from a heightened confidence in the company’s product roadmap and an improving sentiment regarding enterprise spending in China.
The price target uplift to $170 is justified by applying a 12 times multiple to the forecasted FY26E EBITDA, an increase from the previous 10 times multiple. Trading at a P/E ratio of 19.14 and showing robust revenue growth of 5.85%, the stock’s valuation metrics suggest potential upside. This change takes into account the broader expansion of multiples within China’s technology sector and the improving macroeconomic environment. Mizuho has also added Alibaba to its list of Top Picks for the Asia Internet category, signaling strong conviction in the stock’s performance prospects. For deeper insights into BABA’s valuation and growth potential, including exclusive ProTips and comprehensive financial analysis, check out the detailed Pro Research Report available on InvestingPro.
In other recent news, Alibaba Group Holding Limited has been the focus of several analyst updates, highlighting its ongoing developments. Citi has maintained a Buy rating on Alibaba, with a price target of $170, citing the company’s significant advancements in artificial intelligence, particularly through its partnership with Tongyi-Manus. This collaboration is expected to enhance AI development efficiency and expand Alibaba’s user base in China. Meanwhile, Benchmark has also maintained a Buy rating, with a $190 price target, based on anticipated improvements across Alibaba’s core divisions, including e-commerce and cloud computing, and a potential structural rerating in 2025.
Bernstein has upgraded Alibaba from Market Perform to Outperform, raising the price target to $165, attributing this change to a favorable shift in capital allocation towards AI infrastructure and the potential for Alicloud’s revenue growth. Susquehanna has also raised its price target for Alibaba to $175, reflecting an optimistic outlook on the company’s future performance, with adjustments to financial estimates indicating a stronger profitability outlook for fiscal year 2025. These recent developments underscore the positive sentiment among analysts regarding Alibaba’s strategic direction and financial health, particularly in the AI sector.
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