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Alibaba Group Holding (NYSE: BABA) , the largest e-commerce and cloud company in China, might seem like a risky stock to buy amid the rising tariffs and intensifying trade wars. However, its stock has actually risen nearly 50% since the beginning of the year as it impressed investors with the stabilization of its e-commerce business and the growth of its cloud and AI platforms.

But even after that rally, Alibaba's stock remains nearly 60% below its all-time high from October 2020. Let's review four reasons Alibaba could head higher -- and why it's still worth buying.

1. Its core businesses are stabilizing

Alibaba suffered a major slowdown in fiscal 2022 and 2023 (which ended in March 2023). Its e-commerce business struggled with new antitrust restrictions, intense competition from aggressive competitors like PDD Holdings , and China's sluggish economic growth. Its cloud business also faced tougher macro and competitive headwinds.

Data source: Alibaba. FY=fiscal year.

But over the past two years, Alibaba's top line growth stabilized. It offset the slower growth of its Taobao and Tmall marketplaces in China by expanding its overseas marketplaces -- Lazada in Southeast Asia, Trendyol in Turkey, and AliExpress for its cross-border sales -- and its Cainiao logistics business. Its cloud business is also growing again as the artificial intelligence (AI) market expands.

2. It's becoming an AI play

As China's largest cloud infrastructure services provider, Alibaba has plenty of bricks to build its own AI ecosystem. That's why it launched Qwen, its new family of large language models (LLMs), to support the market's new generative AI applications two years ago.

Alibaba launched its latest version, Qwen3, in late April. In most benchmarks, it's comparable to American-developed LLMs like OpenAI's ChatGPT 4.5/o4-mini, Anthropic's Claude 3 Opus, Alphabet 's Gemini 1.5 Pro, and Meta Platforms ' Llama 3. Unlike ChatGPT, Claude, and Gemini, Qwen is a fully open-source platform. Qwen can also run its small to medium LLMs across a broad range of Nvidia 's GPUs, including its midrange PC chips, which aren't subject to the U.S. export curbs against China.

Qwen's expansion and evolution will likely draw more businesses to its cloud platform. That's why its cloud revenue rose 13% year over year in the third quarter of fiscal 2025 -- compared to its 7% growth in the second quarter and 6% growth in the first quarter. Its AI-related product revenue also grew by double digits for six consecutive quarters. So as the AI market heats up, Alibaba's cloud business could become a lot more important than its e-commerce business.

3. It looks undervalued relative to its growth

From fiscal 2024 to 2027, analysts expect Alibaba's revenue and EPS to expand at a compound annual growth rate (CAGR) of 7% and 29%, respectively. Those are high growth rates for a stock that trades at just 16 times forward earnings.

However, Alibaba's valuations are likely being compressed by the murky outlook for its domestic e-commerce marketplaces, the impact of tariffs and trade wars on consumer and enterprise spending in China, and tighter export curbs on its overseas chips. But its stock could quickly command a much higher valuation if any of those headwinds dissipate.

4. A favorable trade deal would send its stock soaring

The biggest near-term catalyst for Alibaba would be a trade deal between the U.S. and China. After holding talks in Geneva, the U.S. agreed to reduce its tariffs on Chinese imports from 145% to 30%, while China will reduce its tariffs on U.S. goods from 125% to 10%. Those reductions will last for a "truce" period of 90 days until formal trade deals can be hammered out.

If that truce leads to a meaningful trade deal between the U.S. and China, the threats of higher tariffs, tighter export curbs, and delistings of U.S.-listed Chinese stocks could considerably wane. A lot of investors would then rotate back toward undervalued Chinese bellwether stocks like Alibaba.

Investors should buy it as the bulls look the other way

Alibaba probably won't ever grow as rapidly as it did in the past, but it should remain an easy way to profit from the long-term growth of China's e-commerce, cloud, and AI markets. If you believe cooler heads will prevail and the trade tensions will ease, then it could be a great time to buy Alibaba before more investors rush back to its stock.

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