Morgan Stanley kept Alibaba (BABA) stock as a “top pick” ahead of late-August earnings. Analyst Gary Yu made the call over two weeks after cutting his target to 0 from 0.

That target sits roughly 60% above where BABA shares closed on Friday at 2.14. Thus, Wall Street is telling clients the stock is worth far more than buyers are currently willing to pay. A price target reflects an analyst’s view of a stock’s fair value over roughly the next twelve months, so a gap this size signals strong conviction that the market is undervaluing the business.

Why the Target Cut Came First

Yu lowered his Alibaba target in early July. He still kept an overweight rating on the stock, an assessment that tells investors to hold more of the shares than a benchmark index would suggest. In other words, the reduced number reflected a more cautious price assumption rather than a change of heart on the company’s prospects.

Other banks pivoted in the same direction. HSBC cut its target to 0 from 6 in July. The bank still maintained its buy rating.

Daiwa moved earlier, cutting to 5 from 0 on June 24. The firm pointed to weak sales during China’s 618 shopping festival, one of the country’s largest online retail events and a closely watched gauge of consumer demand.

Follow us on X to get the latest news as it happens

What Yu Wants Investors to Watch

Yu framed the reiteration by pointing to Alibaba’s cloud infrastructure, which he described as the largest in China. Cloud computing has become a central pillar of the company’s growth story, because the same data-center capacity that hosts business software also underpins the training and delivery of artificial intelligence services.

“We expect Alibaba, having the largest cloud infrastructure in China, to win share in the current evolutionary AI cycle in China,” Yu said.

The bank also cited cash generation, dividends, and share buybacks as support. Buybacks reduce the number of shares outstanding, which can lift earnings per share and signal that management sees value in its own stock. Morgan Stanley noted the online regulatory environment appears to be easing, with Alibaba positioned to benefit.

Yet, the bullish calls sit against a run of bad news. The European Commission fined AliExpress 550 million euros on July 20 for breaching the Digital Services Act (DSA), the EU framework that obliges large platforms to police illegal and harmful content.

AliExpress called the fine disproportionate and has until October 20 to file an action plan.

Meanwhile, Alibaba shares have gained about 18% over the past month. They remain well below their 52-week high of 2.67, leaving room for recovery if sentiment continues to improve.

The late-August report will test whether the cloud growth Yu describes arrives fast enough to close a 60% gap. Investors will look past headline revenue to margins in the cloud division and to any commentary on AI adoption, since those trends will decide whether the bank’s optimism proves justified.

Subscribe to our YouTube channel to watch leaders and journalists provide expert insights

Source: BeInCrypto