Why Alibaba’s Valuation May Not Reflect Its AI Upside

Alibaba has shifted from being mostly about e-commerce to leaning heavily into cloud and AI. The company recently announced it would increase investments in AI and cloud infrastructure well beyond earlier plans. Alongside this, it launched a more powerful language model and struck partnerships with hardware and software vendors to build out a broader AI stack. The goal is to turn Alibaba into a cloud and AI hub—not just a marketplace.

But the real question is: does this translate into value for shareholders? To answer that, I look at how Alibaba is valued compared to its peers. Alibaba currently trades at a lower forward P/E (price to earnings) multiple than many of its global technology peers—even though its cloud revenue is growing strongly. Observers point out Alibaba’s P/E lags behind Microsoft and AWS, despite delivering comparable growth rates. Another approach uses revenue multiples for its cloud unit: applying a conservative EV/Sales multiple to that segment still suggests an upside. For example, some analysts use 6× EV/Sales on Alibaba’s cloud business, which, given its growth, implies meaningful upside versus current pricing.

In practice, I’ve structured scenarios for Alibaba’s value: one case assumes modest cloud adoption, one assumes strong AI and multi-product growth, and one assumes aggressive expansion. I reconcile how much revenue can flow through to profit and free cash flow under each case. The fact that the market is assigning Alibaba a discount relative to peers suggests either skepticism about China risks or doubt about execution. Either way, I believe the valuation gap may narrow if Alibaba demonstrates consistent execution in its cloud and AI investments.

Because Alibaba is trading below many peer multiples but still growing in its core cloud business, I view the current valuation as offering a margin of safety. If the company can push up retention, grow product penetration, and improve free cash flow margins, the valuation multiple could rerate upward. As always, I’ll monitor risks like cost overruns, slower-than-expected AI adoption, and regulatory or geopolitical headwinds.