The Dragon's Roar

Together with Betterment 

Hi everyone,

Welcome to your next deep-dive! Read on to learn more about a surging stock market play from China.

Be Invested.

Investing can be tricky, especially when you don’t want to spend all day watching the markets. 

Here’s why we like Betterment:

• Invest the way you want — choose from expert-built, customizable portfolios.

• Tax-smart tools — tax-loss harvesting helps turn market dips into tax savings.

• Ongoing optimization — this includes automatic dividend reinvestment and rebalancing.

And for a limited time, you can get $1,000 when you open any individual investing account (including a Roth or traditional IRA) and complete a qualifying deposit.

Stock Pick: Alibaba (BABA-US, $355B MCAP)

Wow… what a start to the year.

Who had “LONG European defense stocks, Chinese internet companies, and the German stock market, SHORT Mag7, AI stocks” on their bingo card to start the year?

We’ve had absolute mayhem in the markets around growth scares, DOGE cuts, a contentious Oval Office meeting, and the #1 factor — tariffs. The market hates uncertainty, and we’ve unfortunately had plenty of that in the last 6 weeks.

While the wind is now seemingly out of the sails of the “American Exceptionalism” trade, there are still corners of the market that are working extremely well. We thought we would use this piece to highlight that some stocks still go up despite recent market-wide volatility.

Through this company, we will explore a polarizing part of the investible universe — Chinese Internet stocks.

• Why now? 👉 DeepSeek sparked a Chinese AI Revolution

• Overview 👉 What Does Alibaba Do?

• Ecosystem Suite 👉 Core Platforms & Digital Infrastructure

• AI Opportunity 👉 Drilling down on Qwen

• Growth Drivers 👉 Leveraging AI, Global Expansion & Consumer Demand

• By The Numbers 👉 Key Metrics

Why now? 👉 DeepSeek Sparked a Chinese AI Revolution

DeepSeek didn’t only send shockwaves through U.S. AI companies. It also sparked a “wake up call” with the established players in China. In response to DeepSeek, Alibaba is aggressively ramping up its own AI initiatives.

Under its “user-first, AI-driven” strategy, Alibaba is channeling unprecedented investments — projected to exceed its past decade’s spending over the next three years — into developing robust AI infrastructure and innovative cloud solutions. Its strategy centers on pursuing artificial general intelligence (AGI): the creation of AI models capable of human-level reasoning and self-improvement. By leveraging cost-effective architectures, such as the launch of its new QwQ-32B model, Alibaba aims to deliver competitive performance while using significantly fewer parameters than rivals like DeepSeek. This not only enhances efficiency but also positions the company to capitalize on the accelerating adoption of AI across e-commerce, cloud computing, and international digital commerce.

Financially, with AI-related revenues growing triple-digit over recent quarters and cloud business up +13%, Alibaba’s focused approach in AI is a powerful catalyst for future growth. The convergence of these elements signals that now could be the moment to invest as Alibaba turns technological challenges into long-term opportunities.

Overview 👉 What Does Alibaba Do?

Alibaba is much more than an online marketplace. The conglomerate is a multi-faceted technology giant that powers commerce both domestically and internationally. This is a common thread amongst Chinese Internet companies. While they each have their specific sub-segment, they also serve as conglomerates across many verticals. Its core businesses include:

• E-commerce: Platforms like Taobao, Tmall, and AliExpress connect millions of buyers and sellers, with e-commerce traditionally contributing around 86% of total revenue.

• Cloud Computing: Alibaba Cloud is the leading public cloud provider in Asia, delivering scalable solutions from basic storage to advanced AI and big data analytics.

• Digital Media & Entertainment: Through channels such as Youku and Alibaba Pictures, the company taps into digital content and advertising.

• Financial Services: Although regulatory changes have reshaped its role, digital payment services (historically powered by Alipay) and other fintech initiatives continue to underpin the ecosystem.

• Logistics & International Commerce: Cainiao and strategic international platforms like Lazada extend Alibaba’s footprint across emerging markets.

This diversified approach not only mitigates risk but also positions Alibaba at the nexus of China’s rapid digital transformation.

Ecosystem Suite 👉 Core Platforms & Digital Infrastructure

Alibaba’s product suite is a carefully engineered ecosystem designed to create seamless interactions between consumers, merchants, and service providers. Key components include:

• E-commerce Platforms: Taobao and Tmall remain the backbone of Alibaba’s retail empire, offering everything from daily necessities to luxury goods.

• Alibaba Cloud: Beyond conventional cloud services, Alibaba Cloud now features AI-powered analytics, machine learning modules, and an extensive suite of developer tools that are accelerating the adoption of advanced technologies.

• Digital Payments & Financial Tools: Although Ant Group has undergone significant restructuring, Alibaba continues to benefit from robust digital payment solutions that foster a secure online environment.

• Logistics Network: Cainiao’s smart logistics platform enhances delivery efficiency and cuts operational costs, a critical factor in sustaining high transaction volumes.

• International Expansion: Platforms like AliExpress and Lazada fuel cross-border commerce, with international digital commerce revenue surging by 32% year-over-year in recent quarters.

By integrating these elements, Alibaba transforms raw data and consumer interactions into actionable insights, powering both operational efficiency and customer satisfaction.

AI Opportunity 👉 Drilling down on Qwen

At the heart of Alibaba’s aggressive AI push is Qwen, the company’s flagship AI foundation model. Recently launched in its enhanced form as Qwen 2.5-Max, this model is engineered to deliver high-end performance across multiple domains — from mathematical reasoning and coding to complex problem-solving — while remaining cost-efficient.

Key Highlights of Qwen:

• Performance & Efficiency: Qwen 2.5-Max is designed with a lean parameter count compared to some competitors, enabling it to perform at par with industry leaders like DeepSeek and OpenAI’s models. Its architecture achieves industry-leading benchmarks while reducing operational costs and energy consumption.

• Ecosystem Integration: Qwen is seamlessly integrated into Alibaba Cloud’s infrastructure. This integration allows developers to build a wide range of derivative applications — from conversational chatbots to advanced analytics tools — using Alibaba’s robust, scalable AI platform.

• Global Developer Adoption: Since its launch, Qwen has inspired the creation of over 90,000 derivative models worldwide. This extensive adoption demonstrates its versatility and positions Qwen as a key driver in accelerating the broader AI ecosystem.

• Strategic Role in AGI Pursuit: Alibaba’s overarching AI strategy is focused on the pursuit of artificial general intelligence (AGI). Qwen plays a critical role in this vision, serving as both a foundational model and a springboard for next-generation AI-native applications across Alibaba’s diverse business segments.

By capitalizing on Qwen’s breakthrough capabilities, Alibaba is not only enhancing its internal operations but also unlocking new revenue opportunities through AI-driven innovations. This model exemplifies how Alibaba is turning cutting-edge research into practical, scalable solutions — firmly positioning the company at the forefront of the AI revolution.

Growth Drivers 👉 Leveraging AI, Global Expansion & Consumer Demand

Several factors are propelling Alibaba’s future growth:

• Aggressive AI Investment: CEO Eddie Wu has promised that the next three years will see more capital allocated to AI and cloud infrastructure than was spent over the past decade. With AI-related revenue growing at a triple-digit rate over the last six quarters, Alibaba is well positioned to lead in the race toward artificial general intelligence.

• Expanding International Footprint: Alibaba’s international digital commerce division has surged +32% year-over-year, driven by robust growth in markets like Southeast Asia. Strategic initiatives to consolidate domestic and international commerce are expected to drive further scale.

• E-commerce Maturation: As the Chinese middle class stabilizes and consumer spending picks up, Alibaba’s core e-commerce platforms are regaining market share. Enhanced user experience and improved merchant support are translating into higher transaction volumes and increased monetization.

• Cloud & Digital Transformation: With cloud revenue climbing +13% and growing adoption of advanced AI solutions, Alibaba Cloud is transforming from a cost center into a high-margin growth engine.

Together, these drivers underpin a multifaceted growth strategy that blends technological innovation with market expansion.

By The Numbers 👉 Key Metrics

Alibaba’s financial performance tells a story of transformation and disciplined execution, even amid external headwinds and regulatory shifts. Let’s drill down into the key metrics and financial strategies that underpin its long-term growth.

Robust Revenue Growth & Margin Expansion

Quarterly Highlights:
In Q4 2024, Alibaba reported revenue of 280.2 billion yuan (≈$38.38 billion), marking an +8% year-over-year increase. Notably, net income surged to 48.9 billion yuan (≈$6.71 billion), reflecting a robust rebound following years of regulatory turbulence.

Segment Performance:

• Domestic E-commerce: Despite modest growth of around +5%, this segment remains the core driver, benefiting from strategic initiatives like enhanced user experience and renewed consumer confidence in the 88VIP program.

• International Commerce: Revenue in cross-border operations jumped by +32% YoY, driven by platforms such as AliExpress and Lazada, as Alibaba expands its global footprint.

• Cloud Computing: Alibaba Cloud is emerging as a high-margin growth engine, with revenues up by +13% YoY. This segment’s momentum is amplified by its aggressive push into AI-powered products and big data analytics.

Margin Metrics: Alibaba’s operating efficiencies are gradually improving. Adjusted EBITDA continues to reflect tighter cost management, even as the company ramps up capital expenditures to fuel its AI and cloud strategies. Strong gross margins in software and digital services are a testament to the company’s ability to convert revenue into cash flow, even under competitive pressure.

Strategic Capital Allocation & Shareholder Returns

Aggressive Investment in Growth: Alibaba is set to invest more in AI and cloud infrastructure over the next three years than it did over the past decade. This strategic shift isn’t just about technology — it's designed to unlock new revenue streams and further improve operational margins. Such investments are expected to deliver cost efficiencies over time while positioning the company as a leader in artificial general intelligence (AGI) development.

Capital Expenditures & Liquidity: With robust cash reserves and strong free cash flow, Alibaba has the flexibility to fund these investments without compromising financial stability. The company’s disciplined approach to capital allocation has enabled consistent reinvestment in growth areas while preserving liquidity to weather macroeconomic uncertainties.

Share Buybacks & Dividends: Alibaba has been proactive in returning capital to shareholders. In Q4 2024 alone, it executed approximately $1.3 billion in share buybacks. This move, along with prior repurchase initiatives and dividend payouts, underscores the company’s commitment to enhancing shareholder value even as it continues to reinvest heavily in future growth drivers.

Financial Health & Risk Management

Balance Sheet Strength: A robust balance sheet, characterized by strong working capital and controlled leverage, supports Alibaba’s aggressive growth strategy. The company’s prudent management of debt and capital expenditures ensures that it can sustain high levels of innovation without jeopardizing financial stability.

Operational Discipline: By focusing on operational efficiency — reflected in rising adjusted margins and a disciplined cost structure — Alibaba has managed to deliver consistent profitability improvements, even in a challenging regulatory and economic environment.

Risks 👉 Potential Pitfalls

Despite its strengths, Alibaba faces several risks:

Regulatory Uncertainty: Although relations with regulators are improving, the specter of government intervention still looms large, particularly in areas like antitrust and data security.

Geopolitical Tensions: Escalating U.S.-China trade frictions and export restrictions on critical technologies could impact international expansion and investor sentiment.

Competitive Pressure: Rival firms such as JD.com, Pinduoduo, and emerging tech startups are constantly challenging Alibaba’s market share across various segments.

Macroeconomic Headwinds: A slowdown in China’s economy—driven by property market woes and subdued consumer spending—could dampen growth prospects.

Execution Risks: The aggressive investment in AI and cloud technologies requires flawless execution. Any delays or cost overruns could pressure margins and impact overall profitability.

Wrapping Up…

Investing in China has not been a winning strategy as of late due to the run of the MAG7. You didn’t really need to look abroad when you already had stellar returns right at home. However, the regulatory environment in China is becoming much more pro-business at the same time that there is a lot of pain in US equities from uncertainty in policy direction.

Alibaba’s story is one of transformation and resilience. From its humble beginnings as an online marketplace to its current status as a global tech powerhouse, Alibaba has continually reinvented itself to stay ahead in a dynamic market. Its diversified business model — spanning e-commerce, cloud computing, digital media, and fintech—coupled with aggressive investments in AI, positions it uniquely for long-term growth.

In the end, if you’re prepared to navigate the complexities of the Chinese market — Alibaba’s mix of diversified revenue streams, solid financials, and the blue sky AI opportunity, make it a stock worth watching in the evolving tech arena.

For those looking for the best Week in Review and Investing Week Ahead posts online — subscribe to the Grit Flagship newsletter below! 📩

Cheers,

The GRIT Alpha Team

Grit is a publisher of financial information, not an investment advisor. Grit does not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient. Grit does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. INVESTORS SHOULD OBTAIN INDIVIDUAL INVESTMENT ADVICE BASED ON THEIR OWN CIRCUMSTANCES BEFORE MAKING AN INVESTMENT DECISION

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.

The author, publisher or insiders of the publisher may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions. The author of this publication does not currently hold shares of BABA personally or through the fund they manage.

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and Grit undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

Grit does not accept any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any related social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

Grit publishes content through Beehiiv, an email newsletter platform and operates the websites Gritcap.io and Get-versed.io and and social media accounts (including but not limited to): Instagram, Twitter, Linkedin, TikTok, YouTube, SnapChat, Facebook and Threads. By accessing Grit’s content, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof or any of Grit’s content. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website or Grit constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Grit is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Grit does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors ONLY who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Grit does not verify the adequacy, accuracy or completeness of any information. Neither Grit nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Grit nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis.

Please read: Terms of Use, Privacy Policy, Disclosure Policy, State Disclosure Policy, and Disclaimer Policy

If you have any questions please contact us at [email protected]