Is Alibaba (BABA) Still A Smart Long-Term Investment?

Peterson Investment, an investment management firm, released its “Peterson Investment Fund I” second-quarter 2025 investor letter. During the quarter, the fund declined by 10.1%, compared with a 10.9% gain in the S&P 500 including dividends. Despite the short-term setback, Peterson Investment Fund I remains ahead on a year-to-date basis, returning 13.6% net to investors versus the S&P 500’s 6.2% return. Looking further back, the firm highlighted its long-term record of compounding capital. Since its inception nearly 13.75 years ago, the fund has transformed a $1 million initial investment into $4.2 million net of fees, equating to an annualized return of 10.9%. Management emphasized that this enduring double-digit performance reflects the strength of its disciplined, value-based, and research-driven strategy, as well as its continued focus on alignment with investor interests. In addition, you can check the fund’s top 5 holdings to find out its best picks for 2025. A copy of Peterson Investment Fund’s Q2 2025 investor letter is available for download here.

One of the companies mentioned in the letter is Alibaba Group Holding Limited (NYSE:BABA). Alibaba Group Holding Limited (NYSE:BABA) provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses engage with their users and customers in the People's Republic of China and internationally. Over the past month, Alibaba Group Holding Limited (NYSE:BABA) rose by 34.44%, and its shares gained 71.79% of their value over the last 12 months. On September 22, Alibaba Group Holding Limited (NYSE:BABA) shares closed at $164.25, with a market capitalization of $400.892 billion.

Here is what they have to say about Alibaba Group Holding Limited (NYSE:BABA) in their investor letter:

"The market’s current sentiment toward Chinese equities has created a significant dislocation between Alibaba Group Holding Limited's (NYSE:BABA) intrinsic value and share price. After reaching a 52-week high of nearly $150 in late March, Alibaba’s ADRs fell over 30% to under $100 and remain near this significantly undervalued price. Given our portfolio’s exposure through multi-year option contracts, this volatility produces material mark-to-market price swings. However, these low prices are temporary, and the price today is not reflective of the company’s underlying fundamentals. Alibaba has the capacity to generate and return enormous amounts of cash to shareholders in the coming years.

The recent sell-off reflects regulatory uncertainty, tariff speculation, guidance noise, and delisting headlines. Behind the scenes, President Xi Jinping’s February symposium with technology leaders including Jack Ma suggests potential regulatory relief from Beijing’s multi-year regulatory crackdown.

Alibaba is characterized as a cash-rich, free-cash-flow compounder with global growth in e-commerce, cloud, and AI. As sentiment normalizes, we expect the ADR price to double reaching $200 in 2028, driven by growing free cash flow and multiple expansion combined with robust share repurchases..." (Click here to read the full text)

Alibaba Group Holding Limited (NYSE:BABA) is in 17th position on our list of the 30 most popular stocks among hedge funds. According to our data, 101 hedge fund portfolios held positions in Alibaba Group Holding Limited (NYSE:BABA) at the end of the second quarter of 2025, down from 125 in the previous quarter. BABA missed Q1 2026 earnings expectations, posting an EPS of $2.06 compared to the forecast of $2.13. While we acknowledge the potential of BABA as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Alibaba Group Holding Limited (NYSE:BABA) and Mizuho Securities’ views on the company. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.