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In January 2025, shares of Alibaba Group (BABA 1.33%) experienced a notable increase of 16.6%, as reported by S&P Global Market Intelligence. This surge coincided with developments surrounding a new artificial intelligence (AI) system named DeepSeek, which had a contrary effect on shares of Nvidia (NVDA 2.52%), leading to a decline of nearly 11% in their value.
Alibaba Adopts a New Approach to AI
It is important to clarify that Alibaba is not the creator of DeepSeek. This large language model (LLM) is operated by a software company that shares its name and is owned privately by a Chinese hedge fund known as High-Flyer.
Nevertheless, Alibaba is not lagging behind; it has developed its own LLM called Qwen. Demonstrating agility, Alibaba quickly integrated DeepSeek’s services into its cloud platform, allowing clients to train customized DeepSeek-based LLMs using their own proprietary data. Additionally, on the same day DeepSeek garnered attention, Alibaba unveiled an upgraded version of Qwen, named Qwen2.5. This release was particularly striking as it occurred on the first day of the Lunar New Year, a significant holiday in China.
Thus, Alibaba is not merely reacting to competition; it is actively incorporating DeepSeek technology into its offerings while simultaneously enhancing its internal AI solutions with improved iterations.
Alibaba’s Adaptive Strategies in Technology
While these developments might not be ground-breaking for Alibaba, they do reflect the company’s ability to remain agile in the fast-evolving tech landscape. Such nimbleness is crucial for sustaining long-term viability in the marketplace.
This trend should be reassuring for investors who have supported Alibaba over the years. Insights into the company’s response to DeepSeek and its broader AI strategy are anticipated in the upcoming fourth-quarter earnings report. Analysts are expected to seek clarifications from Alibaba’s management regarding these developments during the earnings call.
Currently, Alibaba stands as a relatively low-cost, rapidly growing entity in various lucrative sectors. Despite recent stock market challenges, the current valuations suggest potential for substantial returns for new investors in the long term.
At present, Alibaba’s shares trade at a price-to-earnings ratio of 20.6 and a free cash flow multiple of 15.8. These figures present a stark contrast to the lofty valuations of other AI-centric companies, including Nvidia, and established players like Amazon and MercadoLibre.
As Alibaba navigates its future trajectory, one factor will be paramount: the effectiveness of its AI strategies will likely dictate the company’s fortunes moving forward.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund holds positions in Alibaba Group, Amazon, and Nvidia. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and Nvidia. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
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