Alibaba Group Holding (NYSE:BABA) has drawn fresh attention after launching its Zhenwu M890 AI chip, a three times faster successor to its prior model, as investors reassess the stock following recent earnings and AI cloud updates.

The Zhenwu M890 launch lands at a time when Alibaba’s share price has been under pressure, with a 30 day share price return of a 3.81% decline and a 90 day share price return of a 12.92% decline. At the same time, the 1 year total shareholder return stands at 10.19% and the 3 year total shareholder return is 72.21%, pointing to longer term holders still being in positive territory despite recent weakness.

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With Alibaba’s share price down over the past quarter while AI chips, cloud and a rising dividend stay in focus, the key question is simple: is the stock still trading below what the fundamentals suggest or has the market already priced in future growth?

Most Popular Narrative: 82.7% Undervalued

Alibaba’s most followed narrative puts fair value at $785.21 per share, far above the recent $135.64 close, which instantly raises questions about the assumptions behind that gap.

We all know the stock BABA and its story, one of the biggest companies in China. Since its foundation, it has managed to create corporate and budget stability, which supports an economic position with the potential to create new highly profitable market sectors through new investments, or to invest in the scalability of existing markets, as is happening in the cloud computing segment.

The saturation of the company's reference market makes it necessary to use part of the profits in other markets in order to make growth attractive to investors.

The narrative leans on steady business foundations, expanding cloud operations and a long runway for reinvestment. It is worth examining which growth path and profitability assumptions are most influential for that valuation estimate, and how they relate to the difference between the recent price of $135.64 and the $785.21 fair value figure.

Result: Fair Value of $785.21 (UNDERVALUED)

However, this depends on continued execution in cloud and AI chips and assumes that regulatory or competitive pressures in China do not weigh more heavily on future profitability.

Another View: What The P/E Ratio Says

While the community narrative points to sharp undervaluation, the current P/E of 19.9x paints a more cautious picture. It is slightly higher than the global Multiline Retail industry at 19.1x but below peers at 24.6x, and well under a fair ratio estimate of 33x. This suggests there may be room for both upside and disappointment if sentiment shifts.

For investors, that mix of a lower P/E than the fair ratio but a premium to the wider industry raises a simple question: is this a margin of safety, or a signal that expectations might already be baking in a lot of good news?

Next Steps

If this mix of optimism and caution feels familiar, treat it as a prompt to check the numbers yourself and move quickly from headline impressions to your own conclusions, starting with 3 key rewards

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.