Employees move in and out of Alibaba’s Xixi campus on a dreary February morning in Hangzhou, scanning badges beneath futuristic-looking curved glass facades that haven’t been affected by years of regulatory storms. Inside, engineers are honing code for Qwen 3.5, the company’s most recent AI model, which executives believe will revolutionize Alibaba over the next ten years. Investors, however, have a more straightforward query outside the campus gates: Why does this company continue to trade at such a discount?
Alibaba’s valuation discrepancy is causing concern once more. Not in silence, either. Recent discounted cash flow models suggest that the stock is currently trading between 40 and 45 percent below its estimated fair value. That sounds like a gift on paper. While some intrinsic value models suggest numbers north of $250, shares are currently trading around $150. The targets set by analysts are significantly higher. However, the market is still wary, almost doubtful, as though recalling a painful experience.
| Company | Alibaba Group Holding Limited |
|---|---|
| Founded | 1999 |
| Founder | Jack Ma |
| Headquarters | Hangzhou, China |
| Market Cap (Feb 2026) | Approx. $342 Billion |
| Forward P/E | ~24x |
| Primary Businesses | E-commerce, Cloud Computing, AI, Logistics |
| Stock Ticker | NYSE: BABA |
| Reference Website | https://www.alibabagroup.com |
It’s difficult to ignore how emotionally charged Alibaba’s chart still is. As a reminder of Beijing’s regulatory crackdown that virtually overnight transformed China’s tech sector, the stock is still more than 60% below its 2020 peak. It felt more like a rift in trust than a correction to watch that collapse happen in real time. Investors who previously viewed Alibaba as China’s version of Amazon.com Inc. abruptly changed their minds about the rules of the game.
Ironically, the company’s operational strength has increased since those difficult times.
The growth rate of core commerce has slowed and stabilized. International operations are now profitable. Most remarkably, Alibaba Cloud, which was previously thought of as an optional benefit, is growing once more as a result of China’s push for artificial intelligence. In order to establish the company as a domestic leader in a market that is dominated globally by Amazon and Microsoft Corporation, management has placed a significant emphasis on AI infrastructure, coding tools, and enterprise services.
The valuation discount still exists, though.
Geographical factors rather than financial ones might contribute to the explanation. Even when growth trajectories are similar, investors seem willing to pay comparable multiples, if not higher, for American hyperscalers. Alibaba trades at a forward multiple that is about in line with larger tech indices, but there is still a psychological markdown compared to its American counterparts—a “China factor” that hasn’t gone away.
Global capital is still cautious, not because the spreadsheets aren’t accurate, but rather because the macroenvironment is still erratic. Every earnings call subtext includes elements such as regulatory risk, capital controls, tariffs, and geopolitical tension. It’s possible that the market is pricing uncertainty in addition to earnings.
Then there is the enthusiasm for AI.
Undoubtedly, sentiment has improved as a result of Alibaba’s AI expansion. The business is constructing models, providing inexpensive coding APIs, and fiercely vying for market share in the cloud. Cloud growth has been close to 30% annually in some quarters. Those are figures that would normally fetch high prices. Investors, however, don’t seem to be sure if this momentum will result in long-term margin growth.
There is a risk of execution.
EBITA has been under pressure from Quick Commerce investments, such as ultra-fast delivery programs. Because of excessive spending, margins in some segments have drastically shrunk. Long-term strategies like retaining users and protecting market share may make sense, but short-term profitability appears to be inconsistent. In a highly competitive domestic market, it is still unclear if these aggressive bets will simply exhaust capital or compound value.
Peers such as PDD Holdings Inc., on the other hand, have experienced faster growth in some quarters, sometimes at lower multiples. Uncomfortable questions are always raised by comparisons. Is Alibaba’s price more reasonable in light of its slower top-line growth, or is it actually undervalued?
Conversations about Alibaba were different last month than they were two years ago as I strolled through Hong Kong’s Central district, where trading desks hummed under fluorescent lighting. The stock felt radioactive back then. It seems complicated now. Not poisonous. Not euphoric. Something halfway.
Investors appear to be caught between fear of missing out and fear of making the same mistakes they have in the past.
Recent months have seen a slight increase in short interest, indicating that skepticism hasn’t gone away. However, as Beijing positions AI self-reliance as a national priority, fund managers who are still underweight Chinese stocks are reevaluating their exposure. Alibaba stands to gain disproportionately if the demand for AI in the country increases.
The wider cultural change is significant. Chinese tech stocks were considered structural risks a few years ago. Some portfolio managers are silently questioning whether it is riskier to overpay for certainty elsewhere, given the extremes of American AI valuations today.
Alibaba is situated at that intersection.
Its balance sheet is still solid. The cash flows are sound. There are dividends, but they are small. The company is now an improving enterprise that has been hampered by previous volatility rather than a distressed one. Opinions vary on whether that shadow warrants a 40% valuation difference.
It seems like the market isn’t entirely convinced either way as we watch this play out. Should AI revenues significantly increase and margin stability return, the discount may compress rapidly. The current multiple may turn out to be generous if competition heats up or geopolitical tensions resurface.
Alibaba currently operates in that awkward middle ground, where it is neither completely trusted nor despised.
And maybe that’s why people continue to wonder about the valuation discrepancy. Belief hasn’t fully caught up with the numbers, not because the math is enigmatic.
