Episode 64 | Global AI Momentum: What Alibaba Reveals About China’s Strategy

In Episode 64 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, delivers an analysis of Alibaba, one of China’s largest and most influential technology conglomerates. He examines the company’s structure, leadership under Eddie Wu and Jack Ma, and its expanding focus beyond retail into cloud computing and artificial intelligence—where Alibaba trails only AWS and Microsoft Azure. Drawing on insights from his recent trip to China, Lake emphasizes the nation’s economic energy and its parallel with the U.S. in driving AI innovation. He highlights Alibaba’s strong year-to-date performance, solid gross margins, growing free cash flow, and substantial $60 billion net cash position, while noting weaker net margins. Rodney frames the company as a key lens into China’s AI and cloud ambitions amid the country’s broader economic resurgence.

Chapters

• 0:00 Introduction
• 4:47 Business
• 13:07 Management
• 15:57 Price/Valuation
• 18:12 Balance Sheet
• 19:32 Conclusion

Transcript

Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started. Welcome back to Market News with Rodney Lake. I'm your host, Rodney Lake. We're coming to you from the George Washington University School of Business right here in Duquès Hall in the heart of Washington, D.C., Foggy Bottom. 
Coming to you, a GW Investment Institute podcast and YouTube channel. Educational and informational purposes only. Today on the podcast, what are we going to talk about? But on market news, it's going to be a specific company. And this is a company that we've owned in the past, called Alibaba. Now this is a Chinese company, but it has an ADR. The ticker is BABA. Now again, this is a Chinese company. And so doubling down. This is informational entertainment purposes only, for this company. All right. So what is this company? So you 
people may have heard this. People may have owned shares in this, in the past. We did, and maybe, you know something about this. This company does many things. So it is a conglomerate of sorts. And it's one of the sort of most renowned, most well-known Chinese companies. Jack Ma, is the founder. Eddie Wu runs that company, right now. And so, we're going to get into that when we get into the management. But I'm sure you've probably heard of Jack Ma. You've probably heard of Alibaba. And so what do they do? All right. And why am I talking about this? Well, I do think it's time as an analyst, as a business person, as an investor, 
to be thinking about what's happening in China. If you have not been thinking about it already. I was there in March of this this year. And I was really taken aback by, you know, sort of the, the, you know, how impressive, and it was only in a couple places, Beijing and Shanghai, how impressive the setup was there. And so it made me think, okay, well, it's time to make sure that we're really double checking. Double checking and triple checking our work on what's happening in China. And how does that flow through some of these companies? We do own Tencent as an example. And we did own Alibaba in the past. Alibaba has been half way up. So 
unfortunately we, don't own it at the moment. And one of the funds, but I think it's always important to stay fresh. What's going on? And you have this anecdotal information, obviously, you spent some time on the ground there. And that was really, you know, I think eye opening in a few ways. Number one, I think the amount of hustle that's there in China is palatable. I do think, you know, people want to work, people want to do things. And I think when you hear very from a distance, that you know how things work there. I think it's challenging. Just like any other place. If you go there and see it, I think you have a different appreciation. As an investor, 
certainly you can do lots of work and we do lots of work from afar. But I do think having boots on the ground, and doing some due diligence, I think is really interesting, important. And if you can do it, you can't always do that. But if you can do it, I think that's important. And when you think about a place like China, where you basically have two markets evolving for AI right now, I do think it's really important to pay attention to obviously, it's it's the second biggest economy to. And so for a couple of reasons. Number one, it's the second largest economy. US and China 
really dominate the global business scene. The global economic scene is US and China. And then if you think about AI, which is the dominant force right now that we talk about all the time, and everybody talks about all the time. And I think rightfully so, I think it's transformative and it's already transforming things now, making people more productive. And there's going to unlock a lot of, I think, opportunities. And I think you got to pay attention to that. Well, the two places that are racing forward on that are the U.S. and China. If you think about everywhere else, I think it's, 
you know, sort of like a distant, really third place, not that there's not things happening in other places. And they're important companies like ASML, in Europe and ARM in the UK. And so it's not that there aren't important companies and people making great contributions to AI in the other parts of the world, but for the places that are really leading in AI and application of AI, I think you got it. It's really two, right. It is the US and it is China. And so a view into that is some of their companies. And so today we're going to be talking about Alibaba. We're going to use the 
GW Investment Institute framework to talk about that. And maybe we talk obviously we've already been talking a little bit more broadly about, you know, Alibaba as a company or China as a country and Alibaba is a company. So when we think about that, you know let's dive in. Business management price valuation balancing for Alibaba ticker BABA this is a ADR American depositary receipt. So this is a foreign company that trades on a US exchange through something called an ADR. A bank sponsors those shares. All right. So today September 30 we're recording this episode. And it is hitting a 52 week high today at $182. And so that's 
obviously important. It's backed off of that number. It's back. It's backed off of that. But it hit that today. And so you know, you would say, well, and we're going to get into the valuation, maybe that's expensive. Not really. It's had a huge run. But the numbers, you know, you're talking 90%, 85%, year to date numbers. The year to date numbers. Sorry, excuse me, 94% year to date. And so that's, $94, 112%. Excuse me. These are big numbers, right? And so it's already run super hard. And we'll again, we'll, we'll spend a little bit more time with the valuation. But even considering that run you're at the forward PE 23 times you know. Well that's certainly Apple you 
know 35 times Nvidia 41 times. Amazon you know is an is closer to that. But Amazon is 26 times. And so it's cheaper than that even after all that run. And I think it's important for us to really consider and think about what's happening in the AI world. They're they have one of the, the big large language models called Quinn. And the short name is Quinn, that they're using a trillion parameters. So I think it's important to be paying attention to Alibaba. And obviously you have access to to potentially owning it if you want to own it, by buying the ADR shares and participating. So the business, what do they do? Still, a lot of their revenue is driven from the 
retail side, Taobao and Tmall. What are those talks about the consumer to consumer. Little more wild West, anything get can get put on there. Think maybe eBay. And then the Tmall is you know, these are a third party sellers on both these. The Tmalls are vetted brands curated, approved. And so, you know, more certainty around what you're probably going to get more deals on the, on the table. They comprise still the vast the the lion's share of the revenue for, for Alibaba. But what's been growing well the cloud so their cloud business with maybe depending on how you count things, you put that in third place, let's say globally AWS, Microsoft Azure. 
And then Alibaba Cloud. Behind that, they've been growing that aggressively in they're growing the AI business and infusing AI in their model chat bots, everything else called short name Quinn, Quinn 3 trillion parameter model. Depending on the benchmarks, deep seek would be the local out, open source competitor there in China. And depending on what you're doing, you know, some of the things work better. On the open source version of DeepSeek and some things work better on Quinn three. And so depends on what you're doing, but certainly really competitive right there in the heart of that race. And so and obviously participating in AI and really that's important. They also have a stake in Ant Group that was supposed to be spun off a while ago. Ant Financial was called, and now it's got Ant Group. They still own a big stake in that. And that's, you know, you have Alipay as part of that. And certainly people are using that 
for the payments. And so really this is a is a big group, a diverse set of revenues, 20% coming from the cloud business now. And so again, lion's share coming from the retail but growing on the AI, growing, on the cloud business becoming very important businesses for Alibaba. And I think it's important. Okay. When you talk about these businesses okay. Well let's start looking at some of the numbers here. And so what's the market cap for this company 425 billion. So big company. It's been growing obviously rapidly as we mentioned, 100% year to date. So it's gone up quite a lot. So that market cap has grown. And so what's the revenue, 138 billion in the 
trailing 12 months going through June 30th, 2025? Their fiscal year is March 31st. Number. So the trailing 12 months, is 138 billion. And if you look at the growth here, let's go back to 2022, 132 billion grew 18%. And obviously you can see the in level up. It had issues. The governments, you know, stepped in. Maybe it was a little bit less certain what's going to happen. What's the future? So then 126 in 23, 131 in 2024 up 8%, and then 137 5.9%, and now 5.4% at 138. So these are not huge numbers on the revenue side, but I think, you know, all those concerns, what people had are, you know, not necessarily in the rearview mirror, but I think some of those things are like, okay, well, you know, the Chinese government wants these 
companies to succeed. But they want to make sure, you know, that they succeed in their own way. And now you look at what's the projected March 31st, 2026 will be the end of the fiscal year, 5.8%. And then you look out at 10% growth expected in 27, at 161. And so then let's get into the profit margin so we can rate the business here. The gross margins here. Pretty consistent. Good. And then rising. So one of the good news parts of of, you know, some of the trouble they had on the growing that revenue side is that they were able to grow the profit 
margin. So if you look at what is the profit margin in 2022 on the growth side, 38.6 and then 2023, you're looking at 36.7 and 37.7 in 24, and then 40, for 2025 fiscal year ending in March 31st. And then the last 12 months, 41. Right. And the projected go to 42 and then 42 again in 26 and 27, respectively. So you're at 36 in 2022, and now you're getting 41 for the trailing 12 months. And so that's a good lift.
On that. So let's drop down, to the net income margin. So that's, you know, bonus points for them. And that scores so far. But let's look at the net margins. And so net margins right now not quite as good right. As you would think is a big behemoth like this in the tech side– 11%. And that's down. So that's where it's like, okay, maybe the business takes a little bit of a hit and we don't give it such a high score.
And so we'll look at that over time. But, you know, I think initially we can talk about a 7.5 for this, but let's finish up, what it looks like on the net margins. And so net margins, 14 in  2022 and then 12 and 23, 13 and 24. And then there again, their fiscal year is on March 31st, 15.8 so 16.
And then it's dropped in the trailing 12 months to 11.4. Not good. So that's where the ding comes in. Maybe this is an eight. Let's call it a 7.5. Because they have expected growth there definitely in these businesses that you would want to be in, in a market that you would want to be in, which is China again.
The AI play here is U.S China. If you don't have anything in China, I think this is at least a good way to participate in that market. Again, not a recommendation. Educational. 12.2% is the net margin expected for 26 and then 14. So it is rising. So okay, maybe we don't take off a full. So we say seven point you know five for the business.
Maybe you don't go down to a seven. So you net out okay. It should be at 8, 8.5. Given the things around you. Look at the gross margins. Good rising all good. Net margins are not as good. So maybe they're not quite as efficient as they can be. And then let's just look at the free cash flow. They're investing heavily.
So if you look at the free cash flow for the trailing 12 months through June 30th, you're talking about 5 billion. And they're investing, 15 billion in CapEx there. So that's good news from the perspective of, hey, they're going to if they're going to compete, they're going to have to put money to work. And that's expected to grow to 16 and 16, eight and 22, 26 and 27, respectively.
And they're going to, you know, but the good news is even that considered free cash flow looks like it's going to go to 8.4 billion from 5.2 now. That's from June 30th to March 31st. 26. And then 12 billion in free cash flow. So really growing free cash flow considerably there. And so I think that's something important to watch and pay attention to.
But let's go back to the score for one moment. And I would say, well, all things considered, let's talk about 7.5, for the business. Now let's get into the management side here. So if you talk about the management and we might touch on some of the business again, because it is super important to be thinking about that.
And I think one of the reasons, again, is why you would do research on this is because they're in the businesses that you want to be in, they’re on the retail side, they have the connection with the consumers. They have the Alipay. Certainly that I think is fantastic. That connection with many consumers, they're absolutely, they have their own video.
So think about them kind of like an Amazon eBay combo. Plus, you know, all the cloud stuff, which Amazon has to do, and AI and so I think, you know, reasonably good compilation of assets, to play and I think that that's important. So now Eddie Wu, one of the co-founders, Jack Ma, you know, pretty publicly stepped aside.
And but I think now, that has settled down. And Eddie Wu is one of the co-founders of the company, so I think it's in good hands right now. Good allocation of capital has been doing, I think, a fantastic job and and let it, you know, let it through here. I think what could be considered a difficult period, when Jack Ma stepped down, Jack Ma back reengaged at the company, working hard, I think, to to excel this company.
And so I think that's important. You know, the re-engagement, I think is, is helpful when you have, obviously the lead founder of the business back involved. So I think that's good news, Eddie. Well, so, we're not going to spend a ton of time on this on this episode. Probably. We'll come back to it to talk about management for Alibaba.
But when we think about, you know, the challenges that they've had, but the recognition that they also had that cloud super important AI super important. And to be one of the market leaders in China, I think you got to give management a good score there. And again, having this difficult period but remaining focused enough to get those things, you know, who knows if they're right or wrong.
That's not the right terminology or that's not the most accurate terminology to make sure that they did not lose focus on areas of growth, especially very important ones like cloud. Like AI, I think they get a decent score here. So I think that that deserves an eight. So let's give Eddie Wu and team an eight and Jack Ma back included.
I think that bumps you from 7.5 to an 8. You know that the team is back together. Let's see what they can do. I think it's super important again to pay attention to how they participate in the AI race. In China. Again, the two big markets US, China, pay attention to both those. This is one of the leaders publicly listed company here you have access to in the US.
So I think, it's a reasonable way that you can also get up to speed on what's happening there. Look through, this company to that market. And so again, an eight on the management team. Now let's get to the price versus valuation. As we mentioned market cap $425 billion. So this is a big company. It's grown a lot 52 week high.
It's hitting it today and backing off that a little bit. But look the valuation is not you would think like oh huge run. This is super expensive AI. But you know China has has been down. So even with up 100%, when you talk about the year to date, you're trading at 23 times, right? That's kind of market company.
So when you think about that, that not super expensive. 23 times, certainly compared to history, also reasonable, reasonable against its peers. Obviously JD, for example, we're not going to dive into that one today and we've own that one before. Two, trading at less than half of that at nine times. So but, you know, I think it's important to consider it's important to think about, I would rate this as one of the leaders in China, for all the things that we mentioned, the business side and the places that it's in, and I so I think, you know, obviously, compared to some of its Chinese counterparts, it's
going to probably have a slightly higher valuation, which I think is probably deserved, or at least the market has, you know, set it out that way, which I think is probably accurate. So 23 times, but not super expensive when you're comparing it to other names. Again, when you compare that to 35 times, for Apple now, I don't think it's the same risk adjusted setup.
So you have to net that out so it is cheaper which accounts for some of that. All right. So what are we going to give them? The valuation 23 times on the PE side. So if we look at okay well the valuation it's not cheap. Let's say really cheap or anything like that at 23 times. But for all the things that it can, it can do.
And if you look at, well, you got to consider, okay, the gross margins good. 41. And it has been growing up to that point. But the net margins back down. You know not not you're not even at 20 or you're 11 right now and growing. But free cash flow is growing. So some of these things okay what does that work out to?
I think that works out to a 7.5, if you rate that. So I think reasonably good. There. And maybe let's take it down to a 7 actually, because I do think you have to ding a little bit. All right. So now let's move on to the balance sheet. So, taking a look at Alibaba's balance sheet, this is really not a huge concern.
And so, this is going to help you sleep at night. Sleep like a baby. So if you talk about cash in the balance sheet, $100 billion and the total debt 32 billion, there is some preferreds of 11 here. But not a big concern there. So cash and cash equivalents, 100 billion. 110 billion. 32 billion.
So you got net cash, you know, significant amount of net cash on the balance sheet, even if you back out on the preferred side. You know, call it 60 plus billion. If even considering the preferred, around 60 again, we're sleeping, at night like a baby, 60 billion in cash, generating 5 billion this year in free cash flow.
So not a huge concern here. This is not something, again, that's going to keep you up at night that you're going to be worried about. I don't think that it's something that that any of us are that concerned about. So what are you going to give the balance sheet? All that net cash? Sleeping like a baby?
Well, I think that deserves probably a nine, on the balance sheet. So if we look at the balance sheet, and we give that a nine, you know, I think, that that's, you know, that is a reasonable score, for 60 billion, approximately and net cash on the balance sheet. So let's pull this together.
We've rated each one of the categories business, management, price valuation, and balance sheet. We've talked about the business. And again, just to rattle off a few stats before we, you know, pull all the score together. When you talk about this company, it's grown significantly, hitting a 52 week high today, September 31st. We're recording this show, at $182.
It's backed off that right now, $178, doubled 112% year to date with the market cap. You know, of nearly a half $1 trillion, which is 425 billion, which is obviously makes it a big company, globally, big company in the US, in a variety of different businesses. So when we talked about, you know, Tamo, Taobao, TMall, all, you know, that's really the driver of the economics so far.
But cloud is growing. AI is growing. Quinn is Quinn three is their, train perimeter model. Pay close attention to that. So, really important on the business side to think about all those things, to think about where they're going. So we gave them a 7.5 because, you know, the gross margins were good. The net margins not as good.
So we gave them a 7.5 there on the management. Eddie was running the show. Jack Ma is back involved. Kind of get the team back together, steer their way through a difficult period, remain focused, growing cloud, making sure they're at the forefront of AI in China again. U.S. and China, the big economic markets, the big AI markets.
Next up on the valuation side, well, 23 times has had a big run. Not cheap, not super expensive, risk adjusted. Let's put that at a seven, on the price valuation score at ten. And then on the balance sheet again, sleeping like babies with net cash 60 billion approximately net cash on the balance sheet a nine there.
That brings you to 7, 8, 7.875. Right. And so that's the score that we're giving Alibaba. I do think you should be, as a business person as an analyst, as an investor, you should be paying attention to what's happening in China. On the AI front, obviously, in addition to what's happening here at home in the US, but you should be paying close attention to what's happening in China.
Those are the leading markets. I think this company is a way to start to understand that. You should be checking out DeepSeek as well, but this is a company that's publicly listed in the US that you can spend time understanding what's happening. And that is a view into what's happening in the Chinese market. I think they're entrepreneurs are excellent.
I think there's a lot of hustle in China. They want to work. They want to do good things. They want to you know, they want to support their families and they want to grow. And so I think that energy over there is very positive. We'll have to see how this all turns out. Obviously, between the two markets right now, the AI race is on, but we'll be paying close attention.
We'll be getting our students to pay close attention, to both of these markets as well. And again, Alibaba business 7.5, management 8, price valuation 7, balance sheet 9 comes out to a 7.875 for the total score for Alibaba ticker BABA. Remember this is entertainment and informational purposes only. And that's a wrap for this episode of Market News with Rodney Lake. See you back on the next one. Thank you.