The company also stands to reap growth in customer management with their continued investment in cross-selling and targeting, states OCBC in a Feb 18 note, where it raises its fair value estimate for this counter to HK$137.0 ($23.59) from HK$123.40.
Alibaba’s partnership with Apple to introduce their AI model, Qwen and their cloud service AliCloud, into Apple’s latest iPhone 16 offering and subsequent models will open them up to “significant AI and cloud-related monetisation opportunities”.
“We believe Alibaba will likely benefit from an influx of app developers who would upgrade and/or release their AI-related apps on iPhone that will consider Qwen or AliCloud as their
choice of model/cloud service,” says OCBC.
The bank believes that Alibaba has further solidified its leading position in China’s large language model (LLM) space with the release of Qwen 2.5-max. This upgraded version of their existing Qwen 2.5 LLM represents a breakthrough in the field of ultra-large models based on the mixture of experts (MoE) architecture.
Coupled with the accelerated growth of AliCloud should prompt a market re-evaluation of Alibaba’s market position in AI and cloud computing.
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Stabilising margins at the e-commerce platforms Taobao and Tmall and increased Southbound holdings will be further catalysts for Alibaba’s growth, according to OCBC. The management’s commitment to breaking even on their loss-making businesses also signals improved profitability in the next one or two years.
The Alibaba share price has rallied by 38% since the announcement of Qwen 2.5 in end-January but OCBC still believes there will be more upside potential, with boosts also coming from Alibaba’s cloud business.
In addition, Alibaba’s domestic e-commerce fundamentals are improving and a continued focus on providing shareholder value are green flags signalling sustained growth to come.
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The stock now trades at a forward price to earnings (P/E) ratio of 12.8x on the back of projected y-o-y revenue and earnings per share (EPS) growth of 9% and 12% in FY2026 respectively.
OCBC’s higher fair value of HK$137.0 implies a 14x forward P/E, which is its historical average.
