Why Mega Investors Are Betting Big on Alibaba Stock's Comeback

Key Points

• Alibaba is now looking to start a primary listing in China's stock market, which could allow its US listing to rally new buyers.
• Wall Street legends like Michael Burry, David Tepper, and George Soros are pouring money into the stock.
• Analyst sentiment has begun to tick higher, with EPS growth rising and price targets looking to return to 2021 levels.

Most stock market investors are often worried about one market and one market alone: the U.S. stock market and its recent developments. They often fail to recognize that today’s global economy is more connected than ever before, so what happens in one country affects other countries (and their stocks) in a big way. Today, some mega investors have begun to realize just how much upside there could be ahead for the Chinese stock market.

As Chinese stocks have been compressed for the better part of the post-COVID-19 cycle, most seeking momentum have decided that they are either too risky or too slow-moving to even pay attention to. However true these beliefs may be, this is exactly when value investors get excited to start jumping into a market. Today, Alibaba Group NYSE: BABA is the main choice for these investors looking to gain exposure to Chinese markets.

Mega investors like Michael Burry (who predicted the 2008 financial crisis), George Soros, and David Tepper have all invested in Alibaba stock as recently as the company’s latest quarterly earnings announcement. While the financials may have been good enough to trigger some buying, there is now a clear catalyst to attract even more money.

Trillions Could Flow Into Chinese Blue Chips Like Alibaba Stock

Just like the U.S. has its technology sector darlings, behemoths like Amazon.com Inc. NASDAQ: AMZN, Microsoft Inc. NASDAQ: MSFT, and Alphabet Inc. NASDAQ: GOOGL, China has its own set as well. Across the world, Alibaba, Tencent Holdings Ltd. OTCMKTS: TCEHY, and Baidu Inc. NASDAQ: BIDU take the lead in technology.

Two of these, Baidu and Alibaba, make up the largest share of Michael Burry’s portfolio. For David Tepper, Alibaba will be the largest holding at just over $750 million today. Soros seemed to be satisfied with an initial investment of up to $73.8 million.

But why did these investment legends decide to all jump into the same stock at the same time? The answer may be just as simple: The company recently announced that it will now offer a primary listing in the Chinese stock market, making it available for Chinese citizens to invest.

Unlike the U.S., most Chinese citizens only invest in property, not stocks. Less than 25% of people invest in the stock market, and the government is looking to change that as it realizes that having too many people chasing limited amounts of property won’t end well.

One of the fastest-growing middle classes in the world is probably going to look to preserve and multiply its wealth, and that is where companies like MSCI Inc. NYSE: MSCI come into play. They are responsible for making exchange-traded funds (ETFs) available for investors looking for different sorts of exposure.

Remember the low stock investment ratio in China’s population? Well, MSCI could offer the Chinese government the solution of what may become their version of a 401(k) plan, creating a guaranteed buyer for the stock market each paycheck cycle, not to mention the obligatory weightings coming from international funds.

That is where blue chips like Alibaba come into play, as they are tapped into some of the world’s fastest-growing markets and technological developments.

Alibaba Stock's Outlook Gains Positive Sentiment from Wall Street Analysts

When looking at the earnings per share (EPS) forecasts for the coming quarters, investors can notice estimates for the third quarter of 2024 start to tick higher. While this second quarter came close to the $1.65 EPS estimate, analysts are now expecting to see $2.27 for the third quarter, which is 37.6% higher on a quarterly basis.

But the bullish outlook doesn't stop there. Analysts at Susquehanna have landed on a $130 price target for Alibaba stock, which calls for a net upside of as much as 56% from where the stock is trading today, a low 87% of its 52-week high. At the same time, the S&P 500 keeps making new all-time highs.

Considering that Alibaba is going to show a recovery in its net income from rising equity investment valuations, that could be another bullish angle for analysts. However, the real growth is going to come from the company's cloud computing business as it looks to serve the fastest-growing economies of Asia and the Middle East.

Without getting ahead of themselves, investors can stay focused on Alibaba's successful listing in the Chinese stock market. This will give the world an initial sentiment gauge when investors there respond to the stock's availability. More importantly, investors should watch out for which local banks and hedge funds start to buy it.

Considering that Alibaba had a price target of up to $301 a share in 2021 (when the world was still worried about the pandemic's aftereffects), it should not be long before analysts start raising targets again, potentially bringing the stock closer to its all-time high of $319 a share.