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Why Alibaba Stock Gained 16.6% Last Month

Source The Motley Fool

Shares of Alibaba Group (NYSE: BABA) rose 16.6% in January 2025, according to data from S&P Global Market Intelligence. The China-based e-commerce and cloud computing giant soared on the same news that drove Nvidia (NASDAQ: NVDA) shares nearly 11% lower last month: the introduction of a new artificial intelligence (AI) system called DeepSeek.

Alibaba embraces a twist on AI tradition

Alibaba is not the company behind DeepSeek. The innovative large language model (LLM) is run by a software company by the same name, privately owned by a Chinese hedge fund named High-Flyer.

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That being said, Alibaba manages an LLM of its own, called Qwen. The company was quick to introduce DeepSeek services on its cloud platform, giving clients the option to train their own DeepSeek-based LLMs with proprietary data feeds. It also released a new version of Qwen, Quen2.5, immediately after DeepSeek made a splash. The upgrade was unexpected because it fell on the first day of Lunar New Year -- an important holiday on the Chinese calendar.

So Alibaba is doing more than simply riding the coattails of a new challenger in the LLM industry. The company is actively employing and reselling DeepSeek technology on its own platform, while also fighting back with a better version of its in-house AI solutions.

Alibaba stays nimble in the high-tech arena

None of this is game-changing for Alibaba. However, it's good to see the Chinese giant staying light on its proverbial feet, ready to respond to new challenges at the drop of a hat. That's how you keep your business viable in the long run.

That's good news for longtime Alibaba holders like yours truly. I expect to find out more about the company's DeepSeek response and general AI strategy in next week's fourth-quarter earnings report. If nothing else, analysts should poke and prod Alibaba's management for these important details on the earnings call.

Until then, Alibaba remains a low-priced, fast-growing giant in several promising fields of business. The stock has struggled in recent years, arguably setting new investors up for great long-term returns.

Today, it trades at the modest valuation of 20.6 times earnings and 15.8 times free cash flows. These ratios are very affordable next to AI-based market darlings like Nvidia or cloud-plus-retail giants such as Amazon and MercadoLibre.

Whatever comes next for Alibaba, one thing is for sure: Its fortunes should rise or fall depending on how effective the AI strategy turns out to be.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Alibaba Group, Amazon, and Nvidia. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and Nvidia. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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