Should You Buy the Dip in Alibaba Stock?

Alibaba (BABA) shares tumbled 3.5% on Monday following disappointing Chinese economic data. Retail sales in China rose 1.3% in November, the weakest expansion since 2022 and a sharp deceleration from 2.9% growth in October. The slowdown raises concerns about consumer spending in the world's second-largest economy despite government stimulus efforts. 

The weakness stems partly from the waning impact of Beijing's trade-in subsidy program for electronics and other goods, which economist Lynn Song at ING Bank says has shifted from tailwind to headwind. 

The program front-loaded consumption in late 2024, which creates difficult year-over-year (YoY) comparisons that could persist into the first half of 2026. However, the Chinese government could expand subsidies to new categories or chart a fresh course to support spending.

Wall Street remains bullish on Alibaba’s long-term prospects despite near-term economic headwinds. While BABA stock is down 23% from 52-week highs, it has returned 76% in 2025. 

Notably, Alibaba endured a brutal four-year stretch since 2020, during which it lost over $400 billion in market value following the canceled Ant Group IPO and founder Jack Ma's retreat from public life. However, it has quietly emerged as one of China's most advanced AI players under CEO Eddie Wu's leadership. 

The turnaround centers on strategic refocusing around core e-commerce operations while simultaneously investing heavily in AI capabilities developed since 2016. Alibaba's Cloud Intelligence Group posted 34% revenue growth last quarter, with AI-related product sales up triple digits for the ninth consecutive quarter. 

The company's Qwen large language model (LLM) competes directly with DeepSeek and has gained significant market share through aggressive price cuts. Qwen has positioned Alibaba as a key player in the U.S.-China AI arms race, where Beijing aims for global dominance by 2030.

Beyond AI, Alibaba is battling JD.com (JD) and Meituan (MPNGF) for China's instant commerce market, potentially worth $500 billion by the decade's end, offering another avenue for growth as the company reinvents itself for the next phase of expansion.

A Strong Performance in Q3 of 2025

Alibaba delivered robust third-quarter results with total revenue climbing 15% YoY to RMB 247.8 billion ($35.16 billion) when excluding divested Sun Art and Intime retail operations. The performance demonstrated momentum across both strategic pillars, with China e-commerce customer management revenue expanding 10% and Cloud Intelligence Group revenue surging 34%, marking continued acceleration in cloud adoption.

The quick-commerce business emerged as a major growth driver, with revenue soaring 60% as the company executed aggressive expansion plans. Management narrowed unit economics losses by 50% since the July-August period, driven by improved order mix and fulfillment efficiency. 

Non-beverage orders now account for over 75% of total quick commerce volume, driving double-digit increases in average order value that boost overall monetization. The rapid scaling attracted over 100 million daily active users to the quick-commerce channel while maintaining a stable market share amid fierce competition from Meituan and JD.com.

Alibaba set an ambitious target of generating RMB 1 trillion ($142 billion) in quick-commerce gross merchandise value within three years, positioning instant delivery as a core pillar for platform upgrades. 

Free cash flow turned negative to RMB 21.8 billion ($3.11 billion) as the company invested heavily in quick-commerce infrastructure and AI servers. Management signaled that the previously announced RMB 380 billion ($54 billion) three-year capital expenditure plan may prove insufficient given surging customer demand for AI computing capacity that currently outpaces deployment capabilities. 

The balance sheet remains fortress-like with $41 billion in net cash supporting the aggressive reinvestment strategy.

Is BABA Stock Undervalued?

Analysts tracking BABA stock forecast revenue to increase from $138 billion in fiscal 2025 (ended in March) to $217.44 billion in fiscal 2030. In this period, free cash flow is forecast to expand from $10.25 billion to $28.6 billion.

If BABA stock is priced at 20 times forward FCF, it could gain 70% within the next four years. Out of the 23 analysts covering Alibaba stock, 20 recommend “Strong Buy,” one recommends “Moderate Buy,” one recommends “Hold,” and one recommends “Strong Sell.” The average BABA stock price target is $199, above the current price of $150.