Alibaba: GenAI To Steer Long-Term Growth Amid Bullish Momentum, Buy

Robert Way Investment Thesis I am bullish on BABA given its strategic market position, which I believe will give it upward trajectory traction. In January 2024, I published a bullish thesis on Alibaba Group Holding Limited (NYSE:BABA) where I reiterated my buy recommendation. In that analysis, I asserted that what had been a bearish trend was reversing, and a bullish momentum was building. Since that coverage, the stock has gained 7.63%, with a total return of 9.04%. My bullish thesis was based on the company’s strong fundamentals such as its growth and profitability, which still looks attractive currently. Seeking Alpha The YoY growth and profitability metrics, which are above the sector medians, not only reflect the company’s robust fundamentals, but also its superiority in the growth and profitability race when compared to its peers in the sector. The forward values, which are also above the sector medians, show the company’s bright outlook, which aligns with my bullish stance and vindicates my assertion that the company’s strategic positioning will give the company’s growth steam. Technical Analysis In my previous coverage, I mentioned that the stock was at the support zone at about $69 and that the bearish trend was reversing. I did assert that the price was approaching the 20-day MA where a cross-over above it would confirm the bullish onset, which indeed happened. Further, the stock has formed a double bottom pattern (shown by the red eclipse on the chart) which acted as a retest on the support zone, as I had earlier projected. Market Screener Interestingly, the price has crossed above the 50-day MA further confirming that indeed the bullish trend is getting stronger, and it is currently approaching the 100-day and 200-day MAs where a crossover above them would act as a confirmatory signal of a sustainable long-term upward trend. To get a clear outlook here, let’s dive deeper and assess what the technical indicators are showing. To begin with, both the RSI and the MACD oscillators indicate a bullish outlook. The former is above the signal line and moving upward, implying that the dominant trend is upward. The latter is currently at 43 having bounced at the oversold region of about 25, and it has been trending upward. Most importantly, the RSI is at 43 and shows that this stock has a tremendous upside potential before hitting the overbought region of 70. TrendSpider While trading volume is critical in projecting the direction of a stock, it is very promising that over the last three months, BABA has seen a significant positive marginal trading volume. Its OBV has grown from about -16 million in April to a positive figure of about 759 k indicating a growing demand for this stock, which I think will help propel a sustainable share price growth. Trading View In conclusion, BABA is clearly at the early stages of its bullish trend, as shown by it being just above the 20-day and 50-day MAs. However, the indicators are showing that the trend is gaining momentum as shown by the rising OBV, RSI, and MACD. For this reason, I rate the stock a buy with a price target of about $102 which is my resistance zone within a one-year time frame in the technical analysis as shown below. Trading View Strategic Market Position: Adoption Of AI Is The New Revenue Powerhouse BABA operates through 7 segments, whose detailed discussion can be found in my previous analysis. Its online platforms, Taobao and Tmall, are well-known in China, offering a solid domestic customer base amounting to 903 billion active users by 2023. This figure is significant because in 2023, about 65% of its total revenue came from China. Alibaba’s global expansion and cloud services are important growth drivers, with generative AI technologies contributing to a 30% increase in e-commerce orders. The company’s GenAI is evidence of its dedication to innovation and maintaining an advantage over rivals. BABA and other tech behemoths like ByteDance and SenseTime are among the leaders in China’s GenAI infrastructure services sector. Alibaba plans to improve its international digital commerce business [AIDC], which encompasses websites like Lazada and AliExpress, as part of this investment. Two examples of its innovations in GenAI are; Tongyi Qianwen: Which is a large language model akin to ChatGPT from Open AI. It has been incorporated into its commercial apps, such as the DingTalk app for office communication and the Tmall Genie smart speaker. Alibaba benefits greatly from this connection in terms of user engagement and operational efficiency, as it improves user interaction and expedites business processes. Tongyi Wanxiang: This is an AI image-generating model that can create detailed graphics in a variety of forms, including cartoons in three dimensions, watercolor, oil paintings, animation, and sketching. In addition to helping with content production, this technology allows for style transfer, which creates new visuals. This is very helpful for marketing and product visualization. These unique GenAI innovations not only distinguish BABA from its competitors but also demonstrate its commitment to leading the AI revolution in e-commerce. Through its adoption of AI, its e-commerce division revenue grew by 45% YoY in the MRQ. Its combined orders also grew by 20% in the same period, showing the positive impacts on its AI investment, which positions it strategically for growth. According to precedence research, global e-commerce is projected to grow at a CAGR of 15.2% between 2024 and 2033. Precedence Research Given this projected market growth, I believe BABA is positioned strategically to seize the opportunity courtesy of its innovations. These innovations have proven critical in driving its growth, as exhibited by its double-digit growth figure in the MRQ. Other Analysts’ Outlook Considering my bullish outlook and buy recommendation for BABA, I find it imperative to compare my analysis with that of other analysts. According to 16 Wall Street analysts, they have a consensus average price target of $103.93 which is slightly above my price target of $102 discussed above. This implies that my bullish outlook aligns with that of other investors, possibly lending credence to my optimistic view of this stock. Tips Rank Risks Considering American restrictions on the newest GPU technology from Nvidia and other manufacturers, Chinese businesses are more constrained when it comes to AI, therefore Alibaba might not get the same rapid benefits as American cloud computing giants like Microsoft and Alphabet. Alibaba reduced cloud computing prices concurrently to entice AI developers to use its data center services. Thus, although artificial intelligence has significant long-term potential, there may be some short-term challenges. While my article is technical analysis-driven, it is important to note that indicators are not static, and therefore they are likely to change with market conditions, which could lead to misjudgment if not closely monitored. My Final Thoughts In conclusion, Alibaba is a great investment opportunity given its bullish trend, which is gaining momentum. The company’s GenAI innovations are giving its growth traction, leading to double-digit growth both in revenue and orders in the MRQ. With a solid projected market growth, BABA is well positioned to capture share in this market, with its innovations translating to potentially sustainable long-term stock growth. Consequently, I rate this stock a buy.

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