"No one will say the valuation is too high in the short term!" Investors are hotly discussing "Alibaba FOMO"

Driven by the AI boom, Alibaba has staged a rebound this year with a market value surge of $250 billion, which is triggering an increasingly strong "fear of missing out" (FOMO) sentiment in the investment community. However, fund managers believe that the stock still has room for further upside.

Alibaba's Hong Kong shares rose 1.7% last Friday against the market trend, reaching a new high since August 2021. Despite the significant increase in stock price, Alibaba is still over 65% lower than its historical peak, while major U.S. tech giants' stock prices are nearing their peaks.

Investors generally believe that relatively attractive valuation levels and low allocations by global funds leave room for sustained stock price increases. Jian Shi Cortesi, a fund manager at GAM Investment Management, stated that she expects the low allocation situation of global funds to change:

"The strong rebound in stock prices may also exacerbate this (buying) sentiment."

AI Spending Drives Rapid Growth in Cloud Computing Business

Alibaba CEO Eddie Wu stated last week that the company plans to expand its previously set AI investment budget of $53 billion over the next three years, although no specific figures were provided. In contrast, the four major U.S. cloud service providers are expected to invest over $344 billion this year alone, primarily for AI data center construction.

This AI transformation strategy has already shown results. Alibaba Cloud achieved a 26% revenue growth in the latest quarter, becoming the fastest-growing business unit in the group. Bush Chu, an investment manager at Aberdeen Investments, remarked:

"If Chinese companies can continue to demonstrate strong AI capabilities and sustained profit growth, global investors will take notice."

Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management, believes that unlike the rich environment in the U.S., Alibaba is one of the few companies in China that simultaneously possesses world-leading large language models, AI chip acquisition capabilities, cloud infrastructure experience, and data-rich core businesses.

Alibaba has become a representative of AI investment in China. Data from the Hong Kong Stock Exchange shows that as of September 30, the proportion of Alibaba shares held by domestic investors rose from 8.6% a month ago to 11%.

Valuation Levels Remain Attractive

For investors, a core question is how high of a valuation Alibaba should currently enjoy. Currently, its expected price-to-earnings ratio in the Hong Kong market is about 22 times, which, while double its three-year average, is roughly in line with the Hang Seng Tech Index and far below its own historical peak of nearly 29 times.

More importantly, compared to global large-cap tech stocks, Alibaba's valuation appears more moderate. Its current price-to-earnings ratio is significantly lower than that of Amazon and Microsoft. Richard Clode, who manages a $6 billion global tech leaders fund at Janus Henderson, bluntly stated:

"I don't think anyone will say Alibaba's valuation is too high in the short term. This may be why many global investors feel more comfortable entering at this position." Morgan Stanley data shows that as of the end of August, international funds' allocation to Alibaba is still underweight by 1.3% compared to the MSCI China Index. Foreign fund managers like Cathie Wood are turning to a more aggressive stance, as she re-established her position in Alibaba's American Depositary Receipts for the first time in four years last month