On Monday, Morgan Stanley (NYSE:MS) upgraded Alibaba (NYSE:BABA) Group Holding Limited (NYSE: BABA) stock from Equal-weight to Overweight, significantly increasing the price target to $180 from the previous $100. This adjustment reflects a more optimistic outlook on the company's growth prospects. The stock, currently trading at $143.75, has shown remarkable momentum with a 93% return over the past year. According to InvestingPro analysis, Alibaba appears undervalued based on its comprehensive Fair Value model.

The upgrade by Morgan Stanley analysts is based on a steady revenue and adjusted EBITDA forecast, with improvements in Through the Gate (TTG) Customer Management Revenue (CMR)/EBITA and cloud revenue/EBITDA, despite higher depreciation costs. The new price target is derived from a Discounted Cash Flow (DCF) analysis, suggesting a forward P/E ratio of 16.6x for fiscal year 2027, up from the current fiscal year 2026 P/E ratio of 13.6x. The company maintains strong fundamentals with a healthy current ratio of 1.48 and impressive revenue of $134.5 billion in the last twelve months. InvestingPro subscribers can access detailed financial health scores and over 30 additional valuation metrics.

Morgan Stanley's valuation also includes a base-case Sum of The Parts (SOTP) analysis, which places Alibaba's TTG business at $90 per share and its cloud segment at $60 per share. In a more optimistic high-end-case SOTP scenario, the TTG and cloud segments are valued at $120 and $100 per share, respectively.

The firm's positive stance on Alibaba is part of a broader upgrade of the China Internet industry to Attractive. Analysts at Morgan Stanley believe that as the market's focus transitions from concerns over weak consumption to the potential of technological breakthroughs in China, internet companies in the region are poised to benefit from their role as AI enablers and adopters. While Tencent remains their top choice for consumer AI applications and monetization, Alibaba is now favored over competitors such as Meituan, PDD, and JD within the e-commerce and local services sectors.

In other recent news, Alibaba's financial performance and strategic initiatives have garnered significant attention from analysts. CLSA upgraded Alibaba's stock to High-Conviction Outperform, citing a 7.6% year-over-year revenue growth in the December quarter, which exceeded expectations. This growth was accompanied by a rise in adjusted EBITA, contributing to a positive outlook for the company's cloud and e-commerce segments. Meanwhile, JPMorgan raised its price target for Alibaba to $170, maintaining an Overweight rating based on optimism about future earnings bolstered by e-commerce and advancements in cloud and AI.

Jefferies also increased its price target to $160, highlighting Alibaba's competitive advantages in cloud and AI, which have shown promising results in recent quarters. Mizuho expressed confidence by lifting the price target to $140, driven by strong performance in cloud computing and AI, with expectations of significant capital expenditure in AI over the next three years. Baird raised its price target to $125, emphasizing Alibaba's technological capabilities and potential for growth in cloud services.

These developments reflect a broadly positive sentiment among analysts, who anticipate sustained growth and improved profitability for Alibaba in the coming years. The company's strategic investments and focus on technological advancements appear to be key factors in shaping its future trajectory.