Alibaba (HBBD) Stock: Sound Fundamentals Amidst Global Uncertainty & Trade War

Growbeansprout 3 May 2025
Alibaba’s Resilience Amidst Global Uncertainty: Sound Fundamentals Despite Headwinds

Alibaba’s share price has experienced notable volatility in 2025. The stock initially saw a significant surge of over 70% driven by optimism surrounding the company’s advancements in artificial intelligence, particularly the launch of its Qwen model. However, recent escalations in global trade tensions and tariff concerns have led to a correction, pulling the stock back by approximately 20% from its peak on 18 March 2025. Despite these macroeconomic headwinds, the underlying fundamentals of Alibaba are highlighted as resilient, with the group continuing to execute effectively across its core businesses.

Domestic Strength Limits Trade War Impact

Alibaba’s operational focus remains heavily centered on its domestic market. China accounts for a substantial 87% of the company’s total revenue and contributes 100% of its profitability. This strong domestic orientation inherently limits Alibaba’s direct exposure to tariffs or disruptions in US-China trade flows.

The company’s international businesses, including Trendyol in Turkey and Lazada in Southeast Asia, are currently in expansion phases. These ventures are still generating operating losses as investments are made for growth. A detailed look at the International Digital Commerce segment indicates that Alibaba’s direct exposure to cross-border trade between China and the United States is limited, as overseas operations are primarily concentrated outside the US market. Consequently, the direct impact from newly imposed tariffs is expected to be minimal.

AI Innovation Persists Despite Chip Restrictions

Beyond its traditional e-commerce roots, Alibaba is positioned as an emerging technology leader, particularly in artificial intelligence. Its Qwen model has reportedly demonstrated strong performance compared to peers like OpenAI and Gemini, while operating with significantly lower hardware requirements.

While broader tariffs have largely exempted the semiconductor sector for now, US export restrictions on advanced chip technology have tightened since 2022, banning the export of Nvidia’s A100 and H100 GPUs to China. This limits access to cutting-edge hardware for Chinese AI developers, unlike US-based companies which retain full access to the latest Nvidia chips.

Despite these restrictions, Alibaba has successfully developed its Qwen model without reliance on US high-end chips. Similar to the approach taken by Deepseek, Alibaba has adapted its strategy, enabling Qwen to run inference modeling using consumer-grade RTX gaming GPUs. This workaround effectively bypasses existing technology export controls.

Given this ability to innovate under constraint, Alibaba’s ambitions to pursue general artificial intelligence (AGI) are considered largely unaffected. The company’s AI strategy continues to advance, positioning it strongly within China’s competitive technology landscape.

ADR Delisting Risk Mitigated by Hong Kong Listing

Concerns about the potential delisting of Chinese American Depositary Receipts (ADRs) from US exchanges persist amidst broader US-China tensions. Currently, 328 Chinese ADRs are listed in the US, with Alibaba being the largest by market capitalization. Potential delisting measures could trigger significant selling pressure as financial institutions might need to liquidate an estimated US\$800 billion worth of ADR holdings, potentially impacting share prices and valuations.

However, Alibaba has proactively taken steps to mitigate this risk. Following a secondary listing on the Hong Kong Stock Exchange in 2019, the company upgraded this to a primary listing in 2024. This primary listing status facilitated Alibaba’s inclusion in the Stock Connect Programme, enhancing access for mainland Chinese investors.

While the risk of ADR delisting remains plausible, the report notes that the impact would primarily be a capital markets event involving portfolio rebalancing. It is not expected to disrupt Alibaba’s core business operations or its long-term growth strategy.

Macroeconomic Headwinds Remain a Drag

China’s economy and consumer sentiment continue to face fragility, largely due to a prolonged adjustment in the property sector. The escalating trade tensions between the United States, its allies, and China are anticipated to exert further downward pressure on China’s overall economic growth.

Exports play a critical role in the Chinese economy, accounting for approximately 20% of GDP. A sustained slowdown in export activity is likely to exacerbate weakness in domestic consumption, further dampening overall economic momentum. Export growth was already a significant drag on China’s GDP performance in 2024, and early indicators suggest this trend may continue into 2025 and potentially beyond, posing ongoing challenges for companies like Alibaba that are closely tied to consumer activity.

Valuation Discount Offers Potential Value

Alibaba’s share price volatility in 2025, including the initial surge and subsequent correction, reflects the market’s reaction to both company-specific developments like AI and broader macroeconomic and geopolitical factors. Despite the recent pullback, Alibaba’s core business model and fundamentals are seen as relatively resilient and less exposed to direct US-China trade flows compared to other sectors.

Currently, Alibaba trades at a forward price-to-earnings (P/E) ratio of 12x. This valuation is noted as being below most of its global e-commerce and AI peers, suggesting a potential discount.

Here is a comparison of Alibaba’s valuation relative to selected peers:

Source: Yahoo Finance as of 28 April 2025

Accessing Alibaba via SGX SDRs

Investors in Singapore can now access Alibaba through Hong Kong Singapore Depository Receipts (SDRs), providing a more convenient method to invest in select Hong Kong-listed companies, including Tencent. The introduction of SDRs allows investors to purchase Alibaba shares with a lower minimum investment outlay compared to buying Hong Kong-listed shares directly.

Additionally, SDR holdings are custodised within investors’ Central Depository (CDP) accounts, offering seamless integration with their existing Singapore-based portfolios.

Here is a comparison illustrating the lower minimum investment for SDRs:

Source: Yahoo Finance based on price as of 14 February 2025, Beansprout estimates