Alibaba Stock Has Soared More Than 110% This Year. Here's Why It Might Not Be Too Late to Invest.

The one area of the markets where investors have been hesitant to invest in recent years has been in Chinese stocks. Due to concerns about trade and government oversight in China, there's been some hesitation to hang on to promising growth stocks from that part of the world.

A prime example of that is Alibaba Group (NYSE: BABA). Between 2023 and 2024, while the S&P 500 soared more than 50% and tech stocks were taking off due to artificial intelligence (AI), Alibaba, one of the top tech companies in China, fell by 4%.

This year, however, the stock has seen a resurgence. It has more than doubled in value, dwarfing the S&P 500 and its 17% gains. And while it has been red hot of late, it still may not be too late to invest in this top tech stock.

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Alibaba has a wide range of growth opportunities

AI is a huge opportunity for Alibaba. While the company is generating some promising growth from it, AI is still not making a big impact on its financials -- but that could change in the future. A staggering claim the tech company made when it posted its most recent results back in August was that its AI-related revenue was up triple digits for a remarkable eighth straight quarter. And yet, the company generated organic growth of just 10% for its June quarter.

Alibaba's business is massive, with e-commerce still taking up the lion's share of its top line at more than 70%. Its cloud business, by comparison, accounts for just 13%. Over time, however, as its AI business continues to take off, the e-commerce business may account for a smaller piece. And when that happens, the company's overall growth rate should look much more impressive.

Alibaba has multiple growth opportunities in AI, and it even has a large language model of its own: Tongyi Qianwen. It is also working on its own custom chip, and tech giant Apple has partnered with it on creating AI tools for the company's iPhones. These are all just examples of some of the growth opportunities Alibaba has on the horizon, which can accelerate its growth in the future.

Given the potential, the stock still looks cheap

When you consider just how massive a player Alibaba is in the Chinese tech market -- reportedly 80% of the country's tech companies use Alibaba Cloud (as per data from 2023) -- and how plentiful its growth opportunities related to AI are, it's almost mind-boggling to see how cheap the stock is today.

While it has doubled in value this year, remember, it's coming off a couple of tough years when investors were hesitant to invest in Chinese tech companies. Although there's still geopolitical risk to consider with Alibaba, investors can't help but look past that anymore in light of the growth potential it possesses. And even though the stock has done so well, it still trades at a fairly modest price-to-earnings multiple of 22. By comparison, the average stock on the Technology Select Sector SPDR Fund trades at a P/E of 44. Even the S&P 500 average is 26.

The stock's modest valuation puts it in a good position to rally even higher, as Alibaba arguably warrants a premium for its tremendous growth opportunities. Instead, it's still trading at a discount.

Alibaba may be one of the best AI stocks to buy today

Even though Alibaba's stock has been on a tear of late, there's still time to invest in the business and potentially set yourself up for a good return in the long run. At a time when many AI stocks are trading at egregious valuations, Alibaba still looks cheap, and it may be one of the best stocks to own if you're bullish on AI.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.