By Teresa Rivas

Trade wars. Tariffs. A sluggish Chinese economy. Alibaba Group stock should be able to withstand those things.

With tensions between the U.S. and China showing no signs of letting up, Alibaba would appear to be just the kind of company that could find itself in Washington's crosshairs.

It would especially seem so after it slipped just under 1% on Monday, when the White House imposed 25% tariffs on North American allies and a 10% levy on China, causing markets to tank. Yes, the market bounced back when Canada and Mexico reached agreements with the U.S. that resulted in the suspension of the penalties, but the administration has said it would prioritize tariffs over the stock market, not a good sign for any Chinese company, let alone one that has had issues with its own government.

Tariffs aren't the only thing roiling U.S. markets -- and some factors benefit Alibaba. China's DeepSeek sent shock waves through stocks -- artificial intelligence is a key pillar of American exceptionalism -- raising the prospect of cheaper AI and demonstrating, perhaps, that Chinese tech is making key strides that would allow it to keep up with Microsoft, Amazon.com, and other tech titans.

"While DeepSeek's innovation looks impressive, Alibaba's Qwen, Tencent's Hunyuan, and even Baidu all introduced the mixture-of-experts (MoE) approach during respective cloud summits in 2024," writes Citigroup analyst Alicia Yap. "We believe investors have been underappreciating the AI efforts of China internet companies."

To wit, Alibaba Cloud released its latest Qwen2.5-Max, an open-source MoE model that has been pretrained on more than 20 trillion tokens, on Jan. 29, a day after the DeepSeek market panic. Yap argues that Chinese AI models could lead to an inflection point in AI adoption -- cheaper AI can level the playing field for smaller operators in many industries -- and she ranks Alibaba first, ahead of Tencent and Baidu, among companies in her coverage with AI development exposure.

Technicals also appear to be on Alibaba's side. While the stock may need some time to break out -- with the American depositary receipts. at $100, up nearly 19% this month, there is solid support -- which means the stock is unlikely to test its lows from late 2024, notes the Institutional View's Andrew Addison.

"Volume flows are powerful," he writes. "Even though Alibaba has yet to exceed its prior recovery high from February 2023, volume flows surged to new highs."

This leads him to recommend investors buy on any pullbacks around $95, particularly as Alibaba's strength versus the S&P 500 index has hit its low point only in the past year, which "presents an opportunity to begin establishing positions for what could provide bullish surprises later this year."

Bear Traps Report made a similar point recently, arguing that fourth-quarter declines were at or near "the point of maximum seller exhaustion," which has previously been a bullish signal for other stocks. Greater appreciation for Alibaba's tech and AI is just icing on the cake.

Alibaba is up slightly since Barron's wrote about it in the fall: We argued that it was too cheap to ignore, in part due to its AI efforts. Certainly, it took a long time to break even, but trading at just over 10 times forward earnings, it's still inexpensive compared with its own history and many other tech stocks.

New tech, a cheap valuation, and a strong chart should be more than enough to get Alibaba's stock heading higher.

Write to Teresa Rivas at teresa.rivas@barrons.com

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February 06, 2025 15:36 ET (20:36 GMT)

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