Alibaba (BABA) Stock May Be Below Fair Value Despite Fresh AI Export Control Risks

Alibaba Group Holding stock has fallen about 38.0% over the past five years, yet the current checks suggest the shares may now sit at a discount to their intrinsic value estimate and to where simple earnings multiples place the business.

• A roughly 38.0% share price decline over five years means long term holders have seen value erode. This often pushes investors to re examine whether the current price still reflects the underlying business.
• On the upside, Alibaba's push into artificial intelligence, including its Qwen models and the partnership that powers Apple Intelligence in China, can support expectations for future cash flows. At the same time, EU fines, ongoing investigations and tightening tech regulation in China may weigh on how much of that cash flow investors are willing to pay for.
• The stock screens as undervalued across the broader checks, with Alibaba scoring 6 out of 6 on valuation. This points to a market price that is below what several standard yardsticks imply.

The issue now is whether Alibaba's current share price still offers a genuine discount to its intrinsic value estimate once those growth drivers and legal and regulatory risks are weighed together.

Alibaba Group Holding delivered -2.6% returns over the last year. See how this stacks up to the rest of the Multiline Retail industry.

Is Alibaba Group Holding Still Cheap on Cash Flow?

The Discounted Cash Flow (DCF) model looks at what Alibaba Group Holding might generate in future free cash flow and discounts that back to today. Alibaba currently reports latest twelve month free cash flow that is a loss of about CN¥9.1b, yet the DCF model assumes those cash flows recover and grow over time. On those projections, the model arrives at an intrinsic value estimate of about $196 per share.

That compares with a share price that implies roughly a 41.3% discount, so the stock screens as undervalued on this cash flow view. The recent approval of Alibaba's Qwen AI to power Apple Intelligence in China may help explain why some investors see more support for those future cash flow assumptions despite ongoing regulatory and legal scrutiny.

On this DCF view, Alibaba Group Holding stock currently appears undervalued relative to its estimated intrinsic value.

Our Discounted Cash Flow (DCF) analysis suggests Alibaba Group Holding is undervalued by 41.3%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Alibaba Group Holding.

Is Alibaba Group Holding Still Cheap on Earnings?

The P/E ratio is a useful lens for Alibaba Group Holding because the stock still has an earnings base that investors can price today. Alibaba currently trades on a P/E of about 16.8x. That sits below the Multiline Retail industry average of roughly 20.0x and is also beneath the broader peer group average of about 31.2x.

A more tailored fair P/E ratio for Alibaba, which takes into account its growth profile, margins, size and risk, sits higher at about 32.0x. Compared with the current 16.8x multiple, that is a sizeable gap and indicates the market is pricing Alibaba’s earnings at a discount to what this framework implies. This is consistent with the DCF work above, which also points to a market price below the intrinsic value estimate.

On this earnings multiple view, Alibaba Group Holding stock appears undervalued relative to what investors typically pay for similar earnings profiles.

See what the numbers say about this price — find out in our valuation breakdown.

The Alibaba Group Holding Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the valuation work on Alibaba Group Holding leaves off. They outline what would need to be true about growth, margins and earnings for the stock to be worth materially more or less than today’s price. These Narratives are available on Simply Wall St’s Community page. Each one treats fair value as a thesis about Alibaba Group Holding's business that can be tracked over time, rather than as a one-off snapshot.

One of the top community narratives on Alibaba Group Holding: 40% undervalued

"Advancing AI and cloud infrastructure, with Alibaba committing RMB 380 billion over three years, is positioning the company to benefit from persistent enterprise adoption of generative AI and increasing cloud workloads…"

Read one of the top narratives on Alibaba Group Holding

Do you think there's more to the story for Alibaba Group Holding? Head over to our Community to see what others are saying!

The Bottom Line

Alibaba Group Holding screens as undervalued on both the Discounted Cash Flow (DCF) intrinsic value estimate and on earnings multiples, so the current price implies a meaningful discount to what those frameworks suggest. The key question is whether that gap reflects overly cautious sentiment or a fair adjustment for regulatory and legal risks around the business. For you as an investor, the core issue is whether Alibaba can convert its AI and cloud ambitions into durable cash flows that justify a higher multiple without fresh regulatory setbacks. How that plays out will determine whether this discount represents an opportunity or a value trap.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com