Alibaba (BABA) was on a joyride early in 2025 even as U.S. tech shares fell under pressure amid the tariff chaos. Global investors warmed up to Chinese stocks like Alibaba amid the country’s economic stimulus program, and the pivot gained more traction after DeepSeek stunned the world with its low-cost artificial intelligence (AI) model. The sentiment toward Chinese tech stocks improved further following President Xi Jinping’s meeting with domestic entrepreneurs, including Alibaba’s co-founder Jack Ma, in February.

Ma and Alibaba became the face of China’s tech crackdown, so the meeting was quite an about-turn for the country’s political leadership and a clear sign that the world’s second-largest economy was backing its private sector amid the structural economic slowdown. The Chinese economy is also showing signs of improvement, and some data points show that the stimulus has helped revive growth.

Alibaba Launched Several Low-Cost AI Models

On a company-specific level, Alibaba announced several low-cost AI models, and analysts saw the company as a key play on the China AI story. Alibaba partnered with German auto giant BMW (BMWKY) to bring AI to its cars. Similarly, Apple (AAPL) selected BABA as the partner to bring “Apple Intelligence” features to its iPhones in China. The Cupertino-based company is not offering its flagship AI features in China due to regulatory issues, and the partnership with a domestic Chinese company was expected to solve the riddle.

BABA Missed Fiscal Q4 Earnings

However, Alibaba’s bullish thesis has faced a reality check over the last few days. Firstly, the company missed March quarter earnings by a mile, with its profits coming in at just about half of what analysts were expecting. China’s April retail sales also missed estimates, raising concerns over the health of the Chinese economy. If that wasn’t all, reports suggest that the U.S. is scrutinizing Apple’s AI partnership with Alibaba.

The deal was a win-win for both companies as Apple has been losing market share in China, and bringing Apple Intelligence features to the country would have helped the iPhone maker, especially as rival Chinese brands are already offering compelling AI features on their phones.

BABA Stock Forecast

Alibaba stock has come off its 2025 highs as sentiment has soured. Some brokerages, including Benchmark, Mizuho, and Baird, cut Alibaba’s target price following the fiscal Q4 earnings miss. However, all 20 analysts actively covering the stock rate it as a “Strong Buy” – a feat that none of the “Magnificent 7” stocks can boast of. BABA has a mean target price of $159.55, which is 27.5% higher than the May 20 closing price, while the Street-high target price of $180 is nearly 44% higher.

Should You Sell BABA Stock Amid the Flurry of Negative News?

The recent news flow has been undoubtedly negative for Alibaba, especially as it came after a strong YTD rally in BABA stock. I, however, find the recent dip in Alibaba stock a buying opportunity. 

Alibaba is looking to expand its target market and is doubling down on instant commerce, which its CEO of e-commerce business, Fan Jiang, termed as the new “racetrack” for the company. He said that currently the target market for instance commerce is between 500 million-600 million people, it could potentially rise to a billion people. The company is investing to grow that business even as there are signs of a price war as Chinese tech giants try to outmanoeuvre each other to grab a piece of that market. 

Alibaba is advancing in AI, and during the fiscal Q4 earnings call, it said that its revenues of AI products and services have grown in triple digits for the last seven consecutive quarters. As for the partnership between Apple and Alibaba, the U.S. tech giant will eventually need to partner with a Chinese company to bring AI to its iPhones in the country. That could be a bargaining chip as President Donald Trump negotiates a trade deal and TikTok stake sale with China.

All said, I won't sell Alibaba shares at the current level, given the still reasonable valuations as the stock trades at a forward price-earnings (P/E) multiple of just about 12.2x. The company brings reasonably strong growth to the table as it expands its offerings in instant commerce and AI. Moreover, as “U.S. exceptionalism” gets tested, Chinese shares like Alibaba might find some traction in global portfolios, which would help support their valuations that are still quite low by historical standards.