Alibaba (NYSE: BABA) is under immense pressure this morning after posting its Q4 earnings that came in short of Street estimates as strategic investments triggered an alarming 66% decline in net income.
Still, experts at First Eagle – a US-based investment firm – recommend long-term investors to load up on BABA on post-earnings weakness as its artificial intelligence (AI) business remains largely underappreciated.
Alibaba stock has been a disappointment for its shareholders this year, losing about 30% since late January as the escalating US-Iran conflict continues to support “risk-off” sentiment.
Alibaba stock offers a massive AI business for free
According to First Eagle, institutions still pigeonhole BABA shares as a legacy e-commerce story.
Calling it a “fundamental miscalculation”, the investment firm said Alibaba’s stock price is almost entirely a reflection of its core retail operations currently – effectively neglecting the massive long-term value of its AI segment.
It sees the setup as highly attractive given the company’s retail business offers a “margin of safety”, while its artificial intelligence unit paves the way for future upside.
In short, the AI business is essentially a “free call option” for long-term investors building a stake in Alibaba Group Holding at current price.
Plus, a 0.85% dividend yield and authorization to repurchase about $19.1 billion worth of its stock through March 2027 means investors will be handsomely rewarded for patience as well.
Alibaba is turning AI demand into real revenue
Alibaba shares are worth owning also because the management looks committed to monetizing the firm’s heavy research and development (R&D) spending.
Reportedly, the NYSE-listed firm is raising prices across parts of its AI business as surging demand for domestic computing power allows it to lean into its market-leader status.
BABA recently announced plans of raising prices for its proprietary T-Head AI chips, including its high-performance Zhenwu 810E model, by up to 34%.
Moreover, its Cloud Parallel File Storage service – a critical component for data-heavy AI training – will see a 30% increase as well.
These adjustments, effective next month, signal Alibaba Group’s intent to convert its infrastructure dominance into near-term revenue, and position itself as a viable alternative to restricted Western hardware, effectively capturing the “AI premium” in the Chinese market.
How to play BABA shares after Q4 earnings?
Beyond numbers, the “Cloud Intelligence” unit is seeing triple-digit growth in AI-related revenue, a trend likely to accelerate as more enterprises integrate the firm’s “Wukong” agentic AI services.
While the 66% drop in net income looks jarring on paper, it represents a deliberate shift in capital allocation – buying the future rather than propping up the present.
With a massive cash pile, an ongoing $52 billion investment commitment to tech, and a dominant position in the nascent AI agent market, Alibaba is no longer just a digital mall – it’s the backbone of China’s computing future.
At about 25x forward earnings, BABA stock – for those willing to look past the quarter’s volatility – is a high-growth AI giant disguised as a value stock.
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