Alibaba Shares Surge On AI Buzz, Reviving Investor Confidence

Alibaba Group Holding Ltd. is experiencing a dramatic resurgence in investor interest, fueled by the burgeoning excitement surrounding Chinese artificial intelligence (AI). After enduring a years-long regulatory crackdown that almost pushed the e-commerce titan into obscurity, the company’s Hong Kong-listed shares have surged by 46% since hitting a low in January 2025, adding nearly $87 billion to its market value. This rise outpaces the Hang Seng Tech Index’s 25% gain over the same period, positioning Alibaba as the standout performer among China’s tech giants in 2025. On Thursday, shares soared another 9.2%, marking their highest levels since 2022.

This remarkable turnaround is a surprising shift in fortunes for Alibaba, which had faced a series of setbacks due to Beijing’s clampdown on the country’s tech sector and the broader post-COVID economic slump. The current rally is largely attributed to rising optimism about the company’s AI prospects, particularly after the launch of AI services and platforms that have garnered attention following breakthroughs by Chinese startup DeepSeek.

The excitement around Alibaba received a further boost when it was revealed that Apple Inc. is collaborating with the company to introduce AI features in China. This news sent Alibaba’s shares soaring once again on Wednesday, intensifying investor confidence.

The AI Catalyst

“The rise of DeepSeek has ignited a new wave of AI-driven optimism for Chinese tech stocks,” said Andy Wong, investment and ESG director at Solomons Group. “Alibaba stands out in this space, offering tangible growth prospects for the medium term.”

Alibaba’s AI-focused resurgence is part of a broader turnaround effort led by Joe Tsai and Eddie Wu, two of Jack Ma’s longtime partners. Since taking leadership in 2023, Tsai and Wu have focused on revitalizing Alibaba’s core e-commerce business and streamlining operations after the company was battered by regulatory challenges and an economic slowdown. The leadership’s decision to aggressively invest in AI has positioned Alibaba as a key player in the space. Since the rise of ChatGPT, Alibaba has invested in several promising Chinese startups and made significant moves to expand its cloud business, an essential component of AI development.

In January, the company revealed its Qwen 2.5 Max edition, which outperformed other AI models such as Meta’s Llama and DeepSeek’s V3 in benchmark tests, solidifying its position as a major AI contender alongside rivals like Tencent and ByteDance.

However, the path forward remains uncertain. While Alibaba’s AI efforts are gaining traction, the adoption of AI services among domestic consumers and businesses in China has been slower than expected. Many hedge funds and investors are optimistic about Alibaba’s future, with some viewing the company’s cloud business and its AI capabilities as potential drivers of future growth. However, concerns about the monetization of AI technology linger.

Challenges and Future Outlook

Despite the AI hype, Chinese cloud service providers are still lagging behind their U.S. counterparts in terms of growth. Alibaba’s cloud revenue for the December quarter rose 9.7% year-over-year, while rivals like Amazon and Microsoft saw much higher growth rates of 19% and 31%, respectively.

With Alibaba’s financial results slated for release next Thursday, investors are looking for more insight into the company’s progress in AI development and its cloud services’ outlook. For now, derivative traders are showing increased interest, with options contract volumes doubling the 20-day average on Wednesday, reflecting heightened investor activity.

Even after its recent surge, some analysts believe Alibaba’s stock is still undervalued, trading at 12.2 times its forward earnings, below its five-year average of 14.6 times. Manish Bhargava, CEO of Straits Investment Management, noted, “Despite the rally, Alibaba’s stock remains attractive compared to U.S. tech peers, considering its growth potential and market position, particularly with its expanding overseas marketplaces, which could reduce reliance on the Chinese market and drive future growth.”