Alibaba Stock Upgraded by CLSA: Strong Growth Outlook and Market Confidence

Alibaba Group Holding (NYSE: BABA) has received a significant boost from CLSA analyst Elinor Leung, who upgraded the stock rating from Outperform to High-Conviction Outperform on Friday. Along with the upgrade, Leung raised the stock’s price target from $125 to $165, signaling confidence in the company’s future growth trajectory.

At the time of the upgrade, Alibaba’s stock was trading at $135.97, reflecting a 60.36% increase year-to-date (YTD). This upward momentum, coupled with Alibaba’s strong fundamentals, has led analysts to believe the stock is undervalued, particularly given its current market capitalization of $281.92 billion.

Alibaba’s Strong Financial Performance in Q3

The analyst’s bullish outlook comes in response to Alibaba’s impressive earnings report for the December quarter, during which total revenue grew 7.6% year-over-year, reaching RMB 280.2 billion ($38.58 billion). This revenue figure not only surpassed Wall Street expectations but also exceeded CLSA’s internal estimates by 2%.

Furthermore, Alibaba’s Adjusted EBITA (Earnings Before Interest, Taxes, and Amortization) saw a 3.8% year-over-year increase, rising to RMB 54.8 billion ($7.54 billion). This performance was 5.5% higher than CLSA’s previous estimate, further reinforcing the company’s profitability and operational efficiency.

E-commerce Growth: Taobao-Tmall Gains Traction

One of the key drivers behind Alibaba’s growth has been the revitalization of its core e-commerce business, particularly the Taobao-Tmall Customer Management Revenue (CMR). CMR revenue saw a robust 9% year-over-year increase, primarily due to Alibaba’s trade-in policy and improved take-rate strategy.

The trade-in policy, which encourages consumers to exchange older products for discounts on new purchases, has proven effective in stimulating demand. Additionally, an improved take-rate—the commission Alibaba earns from sellers—has contributed to better revenue generation. These factors have collectively strengthened Alibaba’s profit growth and operational resilience in the highly competitive Chinese e-commerce market.

Financial Stability and Future Growth Prospects

Alibaba maintains a strong financial position, with InvestingPro assigning the company a “GREAT” overall Financial Health Score of 3.05. This rating underscores Alibaba’s ability to sustain growth, manage capital expenditures efficiently, and maintain profitability amid evolving market conditions.

Alibaba Cloud: A Key Growth Engine

Alibaba’s cloud computing segment has continued to expand at a double-digit growth rate, with higher profit margins contributing to overall company performance. Cloud services have become a pivotal area for Alibaba’s future expansion, particularly as global demand for AI-driven solutions and enterprise cloud services grows.

CLSA anticipates that Alibaba Cloud will resume over 20% year-over-year growth in fiscal year 2026 (FY26). This growth projection aligns with broader industry trends, where businesses are increasingly shifting towards cloud-based infrastructure and AI-powered technologies.

Capital Expenditure Plans and Profitability Outlook

Alibaba has forecasted an increase in capital expenditures in the coming quarters. However, the company expects this to be balanced by strong demand for AI technology and cloud-based services, ensuring a positive return on investment.

Following Alibaba’s divestment of Intime Retail and Sun Art Retail, two major brick-and-mortar businesses, the company’s overall profitability is expected to improve further. By focusing on high-margin digital and cloud services, Alibaba is positioning itself for long-term sustainable growth.

Investor Confidence and CLSA’s Projections

Despite its current P/E ratio of 18.03 and steady revenue growth of 5.14%, analysts believe Alibaba’s stock remains undervalued, presenting an attractive opportunity for long-term investors.

CLSA has subsequently revised its adjusted net profit forecasts for Alibaba in the coming years:

• FY25: Increased by 3%
• FY26: Increased by 8%
• FY27: Increased by 9%

These upward revisions reflect accelerated growth in Alibaba’s cloud computing sector, as well as a reduction in losses from less profitable business divisions.

For investors seeking detailed financial insights and data-driven projections, InvestingPro offers exclusive research reports and 12+ additional ProTips covering Alibaba’s financial outlook, stock valuation, and industry trends.

: Alibaba’s Strengthened Market Position

With a strong e-commerce recovery, an expanding cloud computing business, and improved financial health, Alibaba continues to solidify its market position. The CLSA upgrade to High-Conviction Outperform, alongside the higher price target of $165, underscores the stock’s potential for future gains.

As Alibaba continues executing its growth strategies and technological advancements, investors remain optimistic about its long-term profitability and market leadership in the digital economy.

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