Alibaba was the market’s favorite Chinese AI stock in 2025: What is BABA’s forecast for 2026?

Chinese stocks had a strong year and are forecast to outperform US markets in 2025. The rally in Chinese stocks, which began last year after the country began unleashing stimulus measures, gained momentum this year. While artificial intelligence (AI) euphoria faded in the US and the “magnificent 7” did not magnificent a yield in 2025, the fever caught up with Chinese stocks. Alibaba (BABA) emerged as the preeminent AI play in the world’s second-largest economy. The stock, previously not “investable” for being on the wrong books of the Chinese authorities, has seen close to FOMO trading this year.

While BABA is down more than 20% from its recent highs, it’s up 75% for the year, far outpacing the gains of the average US tech stock. In this article, we’ll examine BABA’s performance in 2025 and discuss its outlook for 2026 at a time when the AI rally seems to be losing steam.

The year started off on a strong note for Alibaba, rising 50% in mid-February. Several factors helped propel BABA stock higher this year. In January, Chinese AI startup DeepSeek unveiled its low-cost AI model, sparking a buying frenzy by Chinese tech names (and a simultaneous slump in US AI giants). The rally in Chinese tech stocks gained momentum in February after President Xi Jinping met with Chinese businessmen, including Alibaba co-founder Jack Ma.

Ma and Alibaba have become the face of China’s tech crackdown, so the meeting was a major turnaround for the country’s political leadership and a sign that it is supporting its tech companies amid the AI war with the United States.

In particular, Alibaba has appeared to be the preferred partner for foreign companies looking to provide AI services to the communist country. AstraZeneca ( AZN ), Bosch and BMW ( BMWKY ) are some of the foreign companies that partnered with Alibaba for AI. Similarly, Apple ( AAPL ) selected BABA as a partner to bring “Apple Intelligence” features to its iPhones in China.

Meanwhile, Alibaba’s ride ended in mid-March and fell below $100 in April after US President Donald Trump announced tough tariffs on China. However, the two countries reached a truce of sorts, which helped ease fears of a further escalation in trade tensions.

A defining theme for Alibaba this year was falling profits amid increased AI investment and continued losses in the instant commerce business. However, there is optimism about these two businesses. Alibaba is already reaping the rewards of its AI capex in the form of higher cloud revenues. The instant commerce business has the potential to be the next big thing for the Chinese tech giant, something we are witnessing in its neighbor India, where instant delivery apps are rapidly gaining ground.

Wall Street analysts continue to have a bullish bias on BABA, and it has a consensus rating of “Strong Buy” from the 23 analysts polled by bar chart. The stock has an average target price of $198.58, which is 30% higher than current price levels.

While there have been some concerns about a stimulus-driven recovery in the Chinese economy, I remain constructive on Chinese equities as an asset class in general and BABA in particular as we head into 2026.

Alibaba could continue to see pressure on near-term profitability amid flash business losses and AI capex, and the situation is not all that different from the US tech giants, which are staring at a tsunami of depreciation on their growing AI capex. However, these investments are positioning Alibaba for long-term growth, as both instant commerce and AI have enormous potential.

Alibaba is China’s AI cloud market leader with a higher market share than the next three competitors. The company has become a worthy competitor to Western AI rivals and has even developed AI chips. Not only would this help you reduce your reliance on third parties, but it could become an important line of business as you sign up third-party clients. Alibaba has also announced global data centers in countries including France, the United Arab Emirates, Brazil and Japan, making it a growing player in the global AI market.

Consensus estimates call for Alibaba’s fiscal 2027 (ending 2027) earnings per share (EPS) to rise nearly 50% to $8.57, giving it a price-to-earnings (P/E) multiple of 17.7x in 2027. The multiples don’t seem unreasonable for Alibaba, although they aren’t as mouth-watering as they were last year. Overall, while not a buy on the table, I think Alibaba’s risk reward is quite favorable for 2026, and the stock should continue its good run next year as well.

At the date of publication, Mohit Oberoi held a position at: BABA, AAPL. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com

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