JP Morgan quantitative assessment: How should Alibaba be revalued?

Since Alibaba released the Qwen 2.5 flagship model of Tongyi Qianwen on January 29, the company's stock price has risen by 23%; since the DeepSeek night event on January 24 caused a sharp decline in NVIDIA, Alibaba has increased by 37%, significantly outperforming the market.

On February 13, JP Morgan analysts Yao Cheng, Zhang Zhi Hong, and Chen Qi published a research report providing an in-depth analysis of Alibaba Group's valuation. The analysts believe that Alibaba's stock price still has room for further increases, mainly benefiting from three factors:

The valuation multiple of Alibaba Cloud has been raised, expectations for cloud business revenue have been upgraded, and profitability expectations for China's e-commerce business have improved.

Based on these factors, JP Morgan maintains an "overweight" rating on Alibaba, setting a target price of HKD 120 for Hong Kong stocks and USD 125 for U.S. stocks (when the JP Morgan report was published, Alibaba's U.S. stock was at 118.33 points). The analysts emphasized that Alibaba remains their preferred stock in the Chinese internet sector.

Yesterday, Alibaba's U.S. stock closed up 4.34%, and at a price of USD 124.73, there is still a 0.22% upside potential to JP Morgan's target price.

Huge Revaluation Space for Alibaba Cloud

The report believes that the current market valuation of Alibaba Cloud is significantly low. Based on JP Morgan's forecast for Alibaba Cloud's revenue, the market reflects an expected enterprise value/revenue multiple of only 4 times for Alibaba Cloud in 2025, which is on par with Kingsoft Cloud, considered a "smaller participant" in China's cloud market.

The analysts pointed out that as a leader in China's cloud market, Alibaba Cloud's valuation should at least be comparable to the average level of U.S.-listed software-as-a-service (SaaS) cloud service providers:

"Calculating with an average valuation multiple of 6.5 times for U.S. SaaS companies, Alibaba Cloud's value could reach USD 115 billion, which would raise Alibaba's overall valuation to USD 320 billion, providing a 14% upside potential for the stock price."

Furthermore, if calculated at Microsoft's 10.5 times valuation multiple, Alibaba Cloud's value could reach USD 185 billion, and Alibaba's corresponding market value would reach USD 391 billion. In other words, the valuation increase driven entirely by Alibaba Cloud could bring a maximum of 39% upside potential for the stock price. Although the analysts believe this benchmark may seem optimistic, it also indicates the significant elasticity of Alibaba Cloud's valuation.

Dual Drivers of Cloud and E-commerce Business

In addition to the valuation multiple increase, the report also points out two other major drivers for Alibaba's stock price increase: the upward revision of cloud business revenue expectations and the improvement of e-commerce business profitability expectations.

In terms of cloud business, JP Morgan currently conservatively predicts a 10% revenue growth rate for Alibaba Cloud in the 2026 fiscal year but believes there is still a 10 percentage point upward adjustment space. According to a 6.5 times valuation multiple, for every 2 percentage point increase in Alibaba Cloud's revenue growth rate, Alibaba's stock price will rise by 1%. In terms of e-commerce business, analysts expect Alibaba's adjusted earnings per share for the fiscal year 2026 to be 12% higher than the market consensus. This is mainly due to the improvement in the domestic e-commerce fundamentals, and JP Morgan is optimistic about the profit prospects of e-commerce.

For the outlook of the third quarter of the fiscal year 2025, analysts expect that the GMV growth of Taobao and Tmall will improve compared to the previous quarter, customer management revenue will grow faster, and the adjusted EBITDA of Taotian Group is expected to return to positive growth.

However, the report also emphasizes that considering the stage of Alibaba's investment cycle (the fiscal year 2025 is the first year of Taotian Group's three-year investment cycle), Alibaba may currently focus more on the growth of GMV and customer management revenue rather than short-term profits. But in the long run, with market share stabilizing and monetization capabilities improving, along with cost control, the company's profitability is expected to further enhance