Why Alibaba Rallied Today

Key Points

• Wall Street analysts hiked their price targets on Alibaba shares today.

• Last week, Alibaba held its cloud computing conference, increasing its three-year spending target on signs of high demand.

• AI-fueled growth acceleration and a less-hostile government have led shares to more than double this year.

• 10 stocks we like better than Alibaba Group ›

Shares of Alibaba (NYSE: BABA) are rallying again today, up as much as 5.5% before settling into a 4.4% gain as of 12:34 p.m. ET.

Alibaba held a big cloud event last week, giving a bullish outlook and raising its cloud spending forecast above its prior target of $53 billion over three years. Apparently, the outlook was encouraging enough for several Wall Street analysts to significantly raise their price targets on shares to start the week.

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Morgan Stanley and Jefferies up their BABA targets

On Monday, analysts at Wall Street banks Morgan Stanley and Jefferies raised their price targets on Alibaba. Morgan Stanley's Alibaba analyst team raised its target from $165 to $200, largely on the back of increased cloud computing growth. The analysts now actually see cloud growth accelerating 32% in fiscal 2026 and 40% in 2027. For reference, last quarter Alibaba grew its cloud revenue 26%, which was already an accelerating figure.

Obviously, generative AI is sparking huge new demand for Alibaba's cloud services and models, with the Morgan Stanley analysts projecting the number of tokens doubling every two to three months. An AI token is a word or part of a word in an AI prompt or response that acts as essentially a "unit" of AI processing.

Meanwhile, investment bank Jefferies raised its price target from $178 to $230. The analysts cited "remarkable" progress on Alibaba building out AI infrastructure, innovating with its Qwen series of models, and developing useful software agents.

Image source: Getty Images.

Alibaba is still cheaper than the "Magnificent Seven"

Alibaba's stock has rallied 113% this year in a remarkable AI-fueled turnaround. However, shares only trade at 20.7 times earnings, which is still cheaper than the large U.S.-based tech giants.

There are certainly risks to investing in China; however, it appears the government is now more supportive of the tech sector than the hostile posture it took back in 2021-2022. As such, it's no surprise to see the country's tech leaders doing much better today.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.