Alibaba Group (BABA) Stock: Why Analysts See 34% Upside Despite Q4 Stumble

TLDR:

Alibaba stock fell 7.6% after missing Q4 earnings and revenue expectations Cloud revenue grew impressively at 18% year-over-year with AI products showing triple-digit growth Taobao and Tmall Group revenue increased 9%, ahead of expectations The company bought back nearly $12 billion in shares and announced a two-part dividend Analysts maintain Buy ratings with average price targets suggesting 34% upside potential

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Alibaba Group Holding reported disappointing fiscal fourth-quarter results on Thursday, sending its American depositary shares down 7.6% to $124.17. Despite the setback, many analysts remain optimistic about the Chinese e-commerce and cloud computing giant’s future prospects.

Alibaba Group Holding Limited (BABA)

The company reported net income of 12.38 billion Chinese yuan ($1.71 billion) for the quarter ended March 31. Revenue climbed 7% from a year ago to $32.58 billion.

These figures fell short of analyst expectations. Wall Street had projected net income of $2.93 billion and revenue of $33.28 billion, according to FactSet.

The stock drop comes after Alibaba shares had surged approximately 60% since the start of the year. This strong performance may have set the bar too high for the quarterly report.

Cloud Computing and AI Drive Growth

Despite the headline miss, there were several bright spots in the report. Alibaba’s cloud business showed particularly strong momentum, with revenue increasing 18% year-over-year to RMB30.1 billion.

AI-related product sales have been a standout performer. These products have now delivered triple-digit growth for seven consecutive quarters.

The company’s open-source AI model series, Qwen3, is also gaining traction in the market. This progress in AI capabilities is a key factor in analysts’ continued optimism.

Morgan Stanley analyst Gary Yu noted that Alibaba’s cloud performance met expectations. He sees the cloud division as central to the company’s growth strategy, especially as AI adoption accelerates across China.

Core retail operations also showed resilience. Revenue from the Taobao and Tmall Group grew 9% year over year, exceeding expectations according to Benchmark Equity Research analyst Fawne Jiang.

The company’s international digital commerce segment grew more than 20% in the quarter. Its digital media and entertainment segments also saw growth exceeding 20%.

Shareholder Returns and Valuation

Alibaba has been actively returning cash to shareholders. The company repurchased nearly $12 billion worth of shares in fiscal 2025, reducing its share count by more than 5%.

A two-part dividend totaling $4.6 billion is expected to be paid out in July. This package includes both the regular payout and a special dividend.

From a valuation perspective, Alibaba trades at a forward price-to-earnings ratio of 13 times. This represents just over half of its five-year average, suggesting the stock may be undervalued despite its strong run-up earlier this year.

Consensus estimates call for earnings per share to climb 10% this fiscal year to $10. Analysts project further growth of more than 12% in the following fiscal year.

Source: TipRanks

The stock currently has 16 unanimous Buy ratings from analysts tracked by TipRanks. The average price target stands at $167.13, implying nearly 35% upside potential from current levels.

UBS analyst Kenneth Fong maintained a Buy rating with a $180 price target. He pointed to steady trends in Alibaba’s core commerce business and narrowing losses in non-core areas.

Citi analyst Alicia Yap also keeps a Buy rating with a $169 price target. Benchmark’s Jiang has set an even more optimistic target of $190.

While challenges remain, including concerns about the Chinese economy and ongoing trade tensions, many of the catalysts for Alibaba’s growth—including the AI revolution and the Chinese government’s efforts to support economic growth—remain intact.

The recent earnings miss appears to be a bump in the road rather than a sign of deeper problems. For investors with a longer-term horizon, the current pullback could represent a buying opportunity.

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