DeepSeek has completely ignited Alibaba's fire, with its market value "expanding" by nearly $100 billion, becoming a key player in the restructuring of tech stocks

According to the Zhitong Finance APP, after DeepSeek led the revaluation of Chinese tech stocks, Alibaba (BABA.US) has undoubtedly become the protagonist of this tech bull market. Wall Street's focus on Chinese tech companies has shifted from "risk" to "potential."

In the new year, Alibaba has become the best-performing stock among China's large tech companies, surpassing competitors Tencent and JD.com. The company's performance in both the US and Hong Kong stock markets has recently soared, with Alibaba's Hong Kong stock closing at HKD 113.80 yesterday, having risen 46% since hitting a low in 2025 on January 13, expanding its market capitalization by nearly USD 87 billion, exceeding the Hang Seng Tech Index's 25% increase during the same period.

This also means that Alibaba's fate is unexpectedly reversing. After facing policy blows and a decline in consumption due to the COVID-19 pandemic that affected its business, Alibaba lost favor among investors. Behind the rising stock price, there is optimism about Alibaba's efforts to develop its own artificial intelligence services and platforms. After Chinese AI startup DeepSeek announced its technology and triggered a Wall Street crash, Alibaba also gained attention.

Alibaba's stock price was boosted again on Wednesday, following reports that Apple Inc. (AAPL.US) is collaborating with the e-commerce pioneer to launch AI features in China.

Andy Wong, Head of Asia-Pacific Investments and ESG at Solomon Group, stated, "The emergence of DeepSeek has triggered a new catalyst related to AI for Chinese tech stocks. In this field, we believe Alibaba's mid-term profit growth prospects are more tangible and solid."

Alibaba's rebound in 2025 marks the climax of a turnaround led by Jack Ma's two oldest deputies, Joseph Tsai and Eddie Wu. These two chairmen and CEOs are veterans of the original founding team of Taobao, taking the helm in 2023 after years of regulatory investigations and post-pandemic sluggishness weakened its cloud computing and consumer businesses. The two leaders have refocused the company on its fundamentals, concentrating on integrating and streamlining its fragmented core business operations.

They have also decided to make significant strides in the field of artificial intelligence. Since the advent of ChatGPT, Alibaba has invested in some of China's most promising startups, including Moonshot and Zhipu. Additionally, the company has prioritized expanding its cloud business that supports AI development, significantly lowering prices to win back customers that had shifted to competitors during turbulent times. It has also decided to invest in AI, joining the competition led by Baidu at the time.

In January of this year, this effort yielded initial results. Alibaba's benchmark test results showed that the Qwen 2.5 Max version scored higher than Meta Platforms Inc.'s Llama and DeepSeek's V3 model in various tests. The company is now regarded as a leader in the AI field, on par with Tencent, ByteDance Ltd., and startups like Minimax and Zhipu

But it is still too early. A key obstacle faced by Chinese artificial intelligence companies is the slow adoption of AI by domestic consumers and businesses, as well as a lack of willingness to pay for services.

JP Morgan analyst Alex Yao wrote in a report: "Many hedge funds and long investors view AI as a potential turning point for Alibaba, with some expressing interest in understanding the valuation of Alibaba's cloud business and any benefits from large language models." "The AI narrative is seen as a potential driver for re-rating, but there are concerns about the monetization of AI capabilities."

Moreover, so far, the cloud business growth of China's super-large enterprises has lagged behind that of major U.S. counterparts. Analysts estimate that Alibaba's cloud revenue grew 9.7% year-on-year in the quarter ending last December, while Baidu's cloud revenue grew 7.7% in the same quarter, compared to year-on-year growth of 19% and 31% for Amazon and Microsoft, respectively.

Alibaba is set to announce its financial results next Thursday, which is expected to provide investors with a new opportunity to understand the company's progress in AI models and the outlook for its cloud services.

Currently, derivatives traders are increasing their bets. On Wednesday, the volume of Hong Kong options contracts surged to more than twice the 20-day average, reaching the highest level in over four months. More than 110,000 call contracts changed hands, while over 74,000 put contracts were traded. The cost of hedging against downside risk for the next month has fallen to near its lowest level since November of last year.

Even after the recent rebound, Alibaba's valuation remains attractive to some investors. The company's expected price-to-earnings ratio is 12.2 times, below the 5-year average of 14.6 times.

Manish Bhargava, CEO of Straits Investment Management, stated: "Despite the rise in stock price, considering its growth potential and market position, Alibaba's stock is still undervalued compared to its U.S. tech peers." "The company is expanding into overseas markets, which may reduce reliance on the domestic Chinese market and drive future growth."

Alibaba opened higher again today, and as of the time of writing, Hong Kong stocks rose 3.69% to HKD 118, while U.S. stock futures rose 2.48% to USD 121.27