After talking to over 100 Alibaba investors, JP Morgan has sorted out these thoughts

Since last week, Alibaba's stock price in Hong Kong has continued to rebound, outperforming the Hang Seng Index's cumulative increase of 5% during the same period. Does this reflect an improvement in investors' market expectations for Alibaba?

According to a recent research report released by JP Morgan, the bank found through discussions with over 100 Alibaba investors that market sentiment towards the stock has become increasingly optimistic recently, but there are still differences regarding the growth potential of AI and cloud business, market position, and shareholder returns.

Valuation of Artificial Intelligence and Cloud Business. Many hedge funds and long-only fund investors view AI as a potential turning point for Alibaba, with some expressing interest in understanding the valuation of Alibaba's cloud business and the upside potential from large language models. The AI narrative is seen as a potential driver for valuation upgrades, but there are concerns about the monetization of AI capabilities.

Market Sentiment and Position. Investor sentiment is mixed between optimism and caution. Some have taken long positions in Alibaba, citing improvements in fundamentals and shareholder returns, while others are cautious about the momentum driving the current rebound. The market sentiment is that, although Alibaba is in a favorable position, the overall market's focus on smaller, lower-priced companies may limit Alibaba's ability to outperform the market.

Valuation and Earnings Expectations. Investors are concerned about Alibaba's earnings potential, especially regarding its cloud business and AI progress. The market generally believes that the current valuation is low, but some investors are cautious about the sustainability of the rebound in the absence of evidence of earnings exceeding expectations or significant improvements in fundamentals.

The report states that to encourage negative investors to shift to a positive stance, Alibaba may need to provide a clear AI monetization strategy, exceed expectations in cloud business profitability, and achieve a more attractive valuation; while positive investors may change their stance due to execution risks, deteriorating market conditions, competitive pressures, or valuation concerns.

In the report, JP Morgan maintained an "Overweight" rating on Alibaba, expecting its fiscal year 2025 third-quarter earnings report to show improved GMV growth, core customer management revenue growth from Taobao's basic software service fees, and a return to positive growth in adjusted EBITDA for Taotian Group