Where Will Alibaba Stock Be in 5 Years?

With shares down a whopping 47% over the last five years, Alibaba Group (NYSE: BABA) has been dead money for long-term investors. The China-based e-commerce and technology conglomerate faces ongoing political uncertainty, market weakness, and competition from nimble rivals.

Can the behemoth company turn itself over the next five years, or is it doomed to continued stagnation? Let's dig deeper.

What went wrong for Alibaba?

Like many online-focused companies, Alibaba performed well in the aftermath of the COVID-19 pandemic, with its stock price hitting its all-time high of around $313 in October 2020. Since then, its fortunes have reversed. The problem started in November 2020 when Chinese regulators began cracking down on local tech companies, fearing they had become too large and powerful.

Alibaba's problem started when Chinese authorities blocked the planned initial public offering (IPO) of its fintech subsidiary, Ant Group. Over the subsequent years, both Alibaba and Ant Group have faced a series of multibillion-dollar fines over issues ranging from alleged anti-consumer practices to consumer protection and corporate governance.

Killing the golden goose

The good news is that a nearly $1 billion fine against Ant Group in 2023 is widely believed to be the end of China's brutal tech crackdown. As the Chinese economy continues to struggle, the New York Times reports that its government is starting to take a more business-friendly tone and policy stance. But the damage may already be done.

amazon, where will alibaba stock be in 5 years?

Frustrated investor looking at a computer screen.

Through almost half a decade of unpredictable and business-unfriendly policy (including the world's longest-lasting COVID-19 lockdown), China has made itself arguably uninvestable. Multinationals like Apple and Samsung are shifting their supply chains away from the country, while others plan no future investment in its once-coveted market.

Retail investors should take note because this negative sentiment can impact Chinese stock valuations, even if operational results improve.

The next five years for Alibaba

As if the macro challenges weren't bad enough, Alibaba's core operations are also lackluster. While revenue increased by a modest 7% year over year to $30.7 billion, net income collapsed 96% to $127 million based on a drop in the value of its holdings in other publicly traded companies.

Alibaba has its fingers in so many different pies that the performance of these often unrelated equities often overshadows its core e-commerce and cloud computing businesses. Over the coming years, the company's sprawling size could lower its efficiency and management focus, causing the market to continue discounting its valuation.

While management reports that Alibaba's fourth quarter AI-related revenue grew by triple digits, this barely moved the needle in its cloud computing division, which only expanded 3% year over year (to $3.5 billion).

To be fair, Alibaba will undoubtedly become a leader in China's domestic artificial intelligence (AI) market. However, U.S. export controls on the most advanced AI chips could hamper its potential in international markets and hurt its margins by making it more expensive to train and run large language models (LLM) with less powerful and energy-efficient hardware.

Sell or avoid Alibaba stock

With a forward price-to-earnings (P/E) multiple of just 9.3, Alibaba looks cheap compared to its U.S. alternative, Amazon, which trades for 41 times earnings. Alibaba's management seems to be responding to this low valuation with buybacks -- repurchasing an eye-watering $4.8 billion worth of shares in the fourth quarter alone.

Some investors like buybacks because they reduce the number of shares outstanding, which can theoretically increase the value of remaining stock units relative to future earnings. But buybacks don't address the core reasons why Alibaba's stock is so cheap in the first place.

Many investors simply aren't willing to put money into a seemingly unpredictable and hostile Chinese market. And Alibaba's lumbering conglomeration of disjointed businesses makes it even less appealing. The company's AI prospects also look much worse than U.S. alternatives.

With all these long-term headwinds, Alibaba stock looks likely to underperform the S&P 500 over the next five years and possibly beyond.

Should you invest $1,000 in Alibaba Group right now?

Before you buy stock in Alibaba Group, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alibaba Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $566,624!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of May 13, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Apple. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

OTHER NEWS

5 hrs ago

Student fashion show '52' in Hanoi grabs attention for honoring culture and history

5 hrs ago

Nigerians enraged as FG moves to acquire new presidential jets

5 hrs ago

Switzerland: Heavy Rainfall Causes Landslide And Flooding, Cutting Off Zermatt

5 hrs ago

Euro 2024: Gary Neville predicts two changes Southgate will make for England vs Slovenia

5 hrs ago

Is It Too Late to Buy Berkshire Hathaway Stock?

6 hrs ago

Transfer: Wrexham boss elated to sign Okonkwo on permanent deal

6 hrs ago

Transfer: Conte demands face-to-face talks with Osimhen

6 hrs ago

5 Interior-Designer-Approved Finds at Costco

6 hrs ago

Switzerland: Heavy Rainfall Causes Landslide And Flooding, Cutting Off Zermatt 3

7 hrs ago

What Are The Complications Of Human Papillomavirus Infection? A Review By Doctors

7 hrs ago

Dutch app supermarket boss eyes tech boom in online delivery

7 hrs ago

This AI Tool for Lawyers Is All About Sorting Through Millions of Documents Fast

7 hrs ago

Chinese e-commerce sales up 14% during 618 shopping festival, report says

7 hrs ago

Maurice Ice Cream Cake Creation

8 hrs ago

What If a New Planet Formed in the Solar System?

8 hrs ago

WRC adds Paraguay to 2025 calendar in multi-year deal

8 hrs ago

ICMA, Dynamics Solution and Technology sign MOU

9 hrs ago

Ramaphosa Sworn In For Second Term, Says S/Africans 'Disappointed'

11 hrs ago

Canada: Raccoon attempts to navigate barn wall at Dragon's Edge Riding Academy

11 hrs ago

Biafra agitation a spirit, beyond Nnamdi Kanu, Ekpa – Lawyer, Idam

11 hrs ago

Video: See How Evans Kiratu's Kin Demand for Justice after Learning of His Death

11 hrs ago

Ronaldo deserves to play for Portugal, insists coach Martinez

11 hrs ago

‘England are about to really feel the pressure’

11 hrs ago

Is UnitedHealth Group Stock a Millionaire Maker?

11 hrs ago

Germany Beat Hungary 2-0 To Reach Euro Last 16

12 hrs ago

Is AGNC Investment the Best Dividend Stock for You?

12 hrs ago

New Caledonia independence activist to be detained in France

12 hrs ago

3 Reasons to Buy Nvidia Stock Before June 26

12 hrs ago

‘Some people have turned into monitoring spirits because of Tinubu’ – Joe Igbokwe

13 hrs ago

Ukraine: Dad's gardening partner

13 hrs ago

NATO Nation Supporting Putin? Hungary's Orban Openly Slams Biden's 'Hopeless' War Strategy

13 hrs ago

VIDEO: Hezbollah Mercilessly Pounds Multiple Israeli Targets In Revengeful Retaliation

13 hrs ago

Will Alphabet Be Worth More Than Nvidia by 2025?

13 hrs ago

VIDEO: Pastor Gives Golden Tips to People Looking for Spouses, Warns Church Men Playing Women

13 hrs ago

Has Mnangagwa given up on re-engagement with the West? pts over war vets’ funeral policy

13 hrs ago

Tesla's Car Alarm System is STILL Useless!!

13 hrs ago

How To Find Your Perfect Skin Undertone

13 hrs ago

Zambia ‘gravely concerned’ over Mnangagwa statements

13 hrs ago

Want $1,000 in Dividend Income? Here's How Much You Have to Invest in Walmart Stock

13 hrs ago

Is Buying Stocks When the S&P 500 Hits a New All-Time High a Smart Strategy? History Provides a Clear Answer.