“No one will say the valuation is too high in the short term!” Investors are passionately discussing “Alibaba FOMO.”

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Driven by the artificial intelligence boom, Alibaba has staged a rebound this year with a market value surge of $250 billion, triggering growing “fear of missing out” (FOMO) emotions in the investment community, but fund managers believe the stock still has further upside potential.

Alibaba’s Hong Kong shares rose 1.7% last Friday against the market trend, reaching a new high since August 2021. Despite the sharp increase in share price, Alibaba is still more than 65% below its historical peak, while major U.S. tech giants are trading near their highs.

Investors generally believe that relatively attractive valuations and low global fund allocations leave room for continued share price growth. Jian Shi Cortesi, fund manager at GAM Investment Management, said she expects the underweight condition of global funds to change:

“The strong rebound in share price may also exacerbate this (momentum chasing) sentiment.”

AI Spend Drives Rapid Cloud Business Growth

Alibaba CEO Eddie Wu said last week that the company plans to expand its previously set $53 billion AI investment budget over the next three years, though he did not provide specific figures. By contrast, the four major U.S. cloud service providers are expected to spend more than $344 billion just this year, mainly for AI data center construction.

This AI transformation strategy is already showing results. Alibaba Cloud achieved 26% revenue growth in the latest quarter, becoming the group’s fastest growing business unit. Bush Chu, investment manager at Aberdeen Investments, commented:

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

Xiadong Bao, fund manager at Edmond de Rothschild Asset Management, believes that, unlike the U.S. where there are many targets available, Alibaba is one of the few Chinese companies with world-leading large language models, AI chip access, experience in cloud infrastructure, and data-rich core businesses.

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

Valuation Remains Attractive

For investors, a key question is what valuation Alibaba deserves at present. Currently, its forward price-to-earnings ratio in the Hong Kong market is about 22, which is twice its three-year average, but roughly on par with the Hang Seng Tech Index and still far below its own historical peak of nearly 29.

More importantly, compared with global large tech stocks, Alibaba’s valuation appears even more moderate. Its current P/E level is far below Amazon and Microsoft. Richard Clode, who manages the $6 billion Global Technology Leaders Fund at Janus Henderson, stated bluntly:

“I don’t think anyone would say Alibaba’s valuation is too high in the short term. That may be the reason why many global investors feel more comfortable entering at this level.”

According to Morgan Stanley data, as of the end of August, international funds remained 1.3% underweight Alibaba relative to its MSCI China Index weighting. Foreign fund managers such as Cathie Wood are turning positive, with Wood rebuilding her position in Alibaba ADRs last month for the first time in four years.

Risk Warning and DisclaimerThe market has risk, investment needs caution. This article does not constitute personal investment advice, nor does it consider the individual investment objectives, financial circumstances, or needs of particular users. Users should consider whether any opinions, viewpoints or conclusions in this article are appropriate for their situation. Investment based on this is at your own risk. ```