In early November, Alibaba Group (NYSE:BABA) reported solid third quarter results, with revenues up 40% to $16.7 billion and earnings at $1.83 per share. But investors were underwhelmed, as BABA stock initially fell on the news.
Not even the record-shattering “Singles Day” had much of an impact either, as sales jumped by 26% to $38.3 billion. Alibaba stock could only muster a 5% gain.
Even as trade tensions ease, Wall Street is still worried about growth in China.
It also does not help that Hong Kong remains in turmoil, which does not necessarily bode well for Alibaba’s planned $15 billion offering in the country.
And yes, there is still the risk – very remote risk, mind you – that Trump could delist Chinese stocks!
But despite all this, Alibaba stock still is likely to grow for years to come — and this should ultimately drive the value of the shares.
But it just may take some patience.
So let’s take a look at the main catalysts for Alibaba stock:
Artificial Intelligence (AI)
This could perhaps be the most important catalyst for Alibaba stock. It has the potential to transform its business – making it more efficient and smarter. No doubt, AI has been a strategic priority for the largest tech companies in the U.S. like Microsoft (NASDAQ:MSFT), Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).
But interestingly enough, China may be the most ideal country for this technology. As set forth in Dr. Kai-Fu Lee’s book, AI Superpowers: China, Silicon Valley, and the New World Order, the country has the benefit of a massive population, huge amounts of data, large numbers of talented engineers and a permissiveness for using personal data.
For the most part, Alibaba has been effective in capitalizing on the advantages. Over the years, the company has been infusing AI across its ecommerce platforms to enhance conversions as well as the cloud platform, with offerings for computer vision, machine learning, deep learning and NLP (Natural Language Processing).
But Alibaba has also created its own digital assistant, Alime, which has more than 50 million daily active users. What’s more, the company has been developing next-generation chip technologies like the Hanguang 800, which provides for high-performance processing of neural networks.
eCommerce and Alibaba Stock
The eCommerce market in China has been around for 20+ years. But it is far from mature. It’s as if the opportunity is still very much in the early days.
Then again, the secular trends are tidal. The middle class in China is forecasted to hit 600 million by 2022 and the eCommerce market to reach $839.54 billion by 2021.
As for BABA, it is nicely positioned for this. The company’s scale is unmatched, with 693 million annual active consumers on its retail marketplaces like Taobao and Tmall. In fact, the mobile MAU (Monthly Active Users) are at 785 million.
BABA has leveraged its massive platform into strategic partnerships, which enhance the ecosystem. There is a deal with Starbucks (NASDAQ:SBUX) for the delivery market.
Then there is an alliance with ByteDance, which operates the hugely popular social app called Douyin (the company is also the creator of TikTok for the U.S. market). With Alibaba eCommerce buttons, there is much potential for revenue growth.
Alibaba has followed the Amazon.com (NASDAQ:AMZN) playbook by making a big move for the cloud. And so far, it’s been spot on. In the latest quarter, BABA’s cloud business posted 64% revenue growth to $1.3 billion. Consider that nearly 60% of listed companies in China are customers. The Alibaba Cloud platform is quite comprehensive, with features like blockchain, cybersecurity and yes, AI.
In terms of the market opportunity, it is enormous. The IT spending in China for Internet companies is about $80 billion and more than $300 billion for public sector organizations.
— Tom TaulliThis Will Most Likely Be the Next FAANG Stock [sponsor]
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Source: Investor Place