Global Alpha – Buy Alibaba (BABA:NYSE)

Buy Recommendation: Alibaba Group Holding Ltd (NYSE: BABA)

Recent developments in the semiconductor supply chain present an attractive entry point for Alibaba Group (BABA). This week, shares of BABA surged after NVIDIA was authorized to resume selling its H20 chips to China—an event that investment banks consider incrementally positive for Chinese cloud infrastructure and server providers.

Trade Rationale

• Preferred Beneficiary of H20 Chip Supply: Investment banks have specifically highlighted Alibaba as the top beneficiary should NVIDIA’s H20 chip exports continue. The resumption is expected to drive steady capital expenditure growth among China’s cloud operators—directly benefiting companies aligned with the broader Infrastructure-as-a-Service (IAAS) value chain.

• Stronger Near-Term ROI than Peers: Among China’s major cloud players, Alibaba is well positioned as a “shovel seller”—providing cloud tools and infrastructure to outside developers. In contrast, peers like Tencent focus more on direct AI applications. This positioning gives Alibaba a higher near-term return on its generative AI investments.

• Supportive Capex Environment: The anticipated growth in capex across China’s cloud sector should translate to increased demand for infrastructure providers like Alibaba, even if overall generative AI demand has been moderate in recent months.

Considerations

While the H20 chip resumption is not considered a complete game changer—given current stockpiles and measured demand—the cumulative effect is incrementally positive for Alibaba’s cloud and IAAS business. Its leadership among hyperscalers and strong alignment with the next wave of AI infrastructure spending sets up the company for attractive near-term gains.

Recommendation: Buy Alibaba (BABA) to capture upside from growing cloud capex and superior positioning in the Chinese IAAS and cloud development ecosystem.