What a rally: in the past four weeks, Alibaba shares have risen by almost 50%, outpacing their US competitors. Driven by DeepSeek's AI breakthrough and a meeting between President Xi Jinping and the heads of numerous technology companies, investor interest in China's innovations has been rekindled. Speaking of innovations: Alibaba has just released the next version of its artificial intelligence model Qwen, which is said to outperform the highly acclaimed DeepSeek-V3. The value of Alibaba's AI models is also demonstrated by a recent deal with Apple. The iconic US company will use the technology of the company founded by Jack Ma in 1999 for its iPhones sold in China.
"Made in China" is certainly not regarded as a special seal of quality. Most people tend to associate it with cheap goods from the Far East. However, this assessment falls short, especially with regard to the tech sector. Chinese companies are increasingly forming a strong counterpart to Silicon Valley in the USA. The AI hype recently triggered by DeepSeek in China is proof of this - as are the simultaneously plummeting share prices of US players on Wall Street. The ChatGPT competitor is not even at the forefront of innovation in China: Alibaba has an even more powerful chatbot on offer with Qwen 2.5-Max. According to the company, the model outperforms DeepSeek's V3 as well as the latest versions of OpenAI's ChatGPT and Meta's Llama in almost all performance areas.
The news comes at a time of a potential turning point in regulation, after the sector has been under heavy regulatory pressure in recent years. Now, for the first time since 2018, China's President Xi has met with the heads of numerous technology companies - including Alibaba founder and tech billionaire Jack Ma - to help the world's second-largest economy get back on its feet. In view of the growing rivalry with the USA, which is doing all it can to slow down China's technological rise, the domestic tech industry is likely to need political support. Although no details of the meeting were leaked, observers assume that Beijing signaled support for the companies - both for technological progress and to boost domestic consumption.
Alibaba became known and grew as a classic e-commerce group. Despite all its efforts and investments in AI and the cloud, online retail remains the company's most important business segment. In order to stand up to the growing competition - particularly from platforms such as Pinduoduo or Temu from PDD Holdings - the Amazon rival recently merged all of its e-commerce platforms into a new business unit. The new Alibaba E-Commerce Business Group combines the Taobao & Tmall Group and the Alibaba International Digital Commerce (AIDC) Group. The first successes of this restructuring were already evident in the September quarter: AIDC profits rose by 29%.
The second quarter of the 2024/25 financial year (ending March 31) was also characterized by expansion. Revenue increased by 5%, which represents a slight acceleration in growth compared to the previous quarter - where revenue growth was "only" 4%. Operating profit also increased by 5%, which meant that the margin remained stable at 15%. Alibaba will announce how the third quarter developed on February 20.
Analysts expect earnings per share to double for the year as a whole and also anticipate double-digit percentage growth in subsequent years. Although the forecast growth lags behind that of US competitor Amazon, the PEG ratio - in which the price/earnings ratio is divided by the expected earnings growth - gives Alibaba an advantage. Based on the estimates for 2026/27, the ratio is even below 1, which indicates an undervaluation. Amazon, on the other hand, has a value of 1.2. Despite this positive outlook, the recent rally could be exhausted for the time being. The Alibaba share has already exceeded the analyst consensus 12-month average price target of USD 119.41 by around 4%.
For investors, now could be the perfect time to optimize returns. The two new soft-callable Barrier Reverse Convertibles (BRC) turn a pause in the sharp upward trend into cash. With these two products, decent profits can be made even if Alibaba shares move sideways. The CHF-denominated BRC offers an interest rate of 10.00% p.a. with a maximum term of 12 months. On the downside, the partial protection product leaves plenty of room for the underlying. The barrier is fixed at 60% of the starting value. An identical BRC in the USD currency even promises a quarterly coupon payment of 14.80% p.a. Both products also have a soft callable function, which becomes active for the first time after 6 months and can lead to early redemption.
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