Alibaba Group Holding Ltd - ADR

Alibaba was the largest positive contributor to the fund in July, with its share price up nearly 30%. This performance was driven by the announcement of a powerful yet cheap new Chinese AI model, Kimi K3, which was trained using Alibaba’s cloud technology. The exceptional asymmetry on offer in many of the assets the fund currently holds means small changes in news flow or fundamentals can lead to outsize positive performance, highlighting Alibaba's strong position in the AI sector and its potential for future growth.

Alibaba was the largest positive contributor to the fund in July, with its share price up nearly 30%. This performance was driven by the company's cloud technology, which was utilized in the development of a powerful yet cheap new Chinese AI model, Kimi K3. The exceptional asymmetry on offer in many of the assets the fund currently holds means small changes in news flow or fundamentals can lead to outsize positive performance, highlighting Alibaba's strong position in the market.

Alibaba Group Holding is described as an 'Internet infrastructure and e-commerce services provider.' The letter mentions that it is one of the 'China-based digital commerce firms' in the portfolio, indicating its relevance in the context of the fund's investments. However, there is no explicit bullish or bearish argument made regarding its future performance or position within the portfolio.

Alibaba represents our primary exposure to the Chinese market. Despite the persistent geopolitical noise and macroeconomic headwinds in the region, the business generates massive free cash flow and trades at a remarkably depressed valuation. This combination of strong cash generation and attractive valuation makes Alibaba a compelling investment opportunity in the current market environment.

Alibaba underperformed as enthusiasm surrounding its AI and cloud businesses moderated after strong performance, prompting valuation normalisation despite broadly resilient operating performance. Investors remained cautious on the pace of recovery in China's consumer economy and e-commerce spending, while persistent competitive intensity limited confidence in accelerating core commerce earnings. In Antipodes’ view the pullback appeared driven more by sentiment than by a material deterioration in intrinsic value. Alibaba continues to generate substantial free cash flow, maintain a strong net cash position and continues to return capital through ongoing buybacks, leaving the longer-term investment case largely intact.

Alibaba Group struggled as investors questioned the return on investment from its $52 billion AI and cloud infrastructure commitment through 2027. This skepticism reflects broader concerns about the company's ability to generate value from such significant expenditures, particularly in the context of the challenging macroeconomic environment in China.

Alibaba illustrates why we separate business mathematics from the risk premium that markets assign to sovereign and regulatory uncertainty. We invest in the company as a structural toll bridge inside digital commerce, an ecosystem where merchant supply, consumer demand, and logistics throughput reinforce each other and lower unit costs over time. This year, Alibaba's core businesses will generate more than $20 billion in operating cash flow; however, reported free cash flow is currently well below operating cash flow due to a multi-year capex investment cycle in AI infrastructure where returns are uncertain. Capital allocation is a central pillar of the thesis. In fiscal year 2025, Alibaba returned approximately $16.5 billion to shareholders, $4.5 billion in dividends and $12 billion in share repurchases, reducing the diluted share count by more than 5%.

Alibaba has seen a total return of +90% in local currency; however, this strength has occurred alongside a significant decline in fundamentals, with earnings dropping by approximately 75% in the most recent quarter. The company has also increased capital expenditure fourfold over the past two years as it invests heavily in its cloud business. The original investment case was based on strong free cash flow generation, but as this thesis has weakened, we decided to exit the position during the quarter.

Alibaba announced solid Q2 results, but the key headline was the continued acceleration of the cloud business where revenue growth accelerated to 26%, compared with 6% in the same quarter a year ago. Alibaba is emerging as a winner in the Chinese AI ecosystem. While we are cautious about the excesses surrounding many AI-related names, our positions in Samsung and Alibaba reflect a different way of gaining exposure. Both companies trade at valuation levels far removed from bubble territory, are backed by strong balance sheets, and living within their means. Alibaba, meanwhile, combines a core e-commerce franchise with a cloud business that is emerging as a winner in China’s AI ecosystem.

Alibaba Group Holding Limited is the largest retailer and e-commerce company in China, operating platforms like Taobao and Tmall, and expanding into logistics, local services, digital media, and cloud computing. Shares rose during the quarter due to an acceleration in cloud revenue, driven by AI and positive momentum in quick commerce. Alibaba is ramping capital expenditures over the next three years, committing more than $53 billion to build out its cloud infrastructure and add AI capabilities. We retain conviction that Alibaba is well positioned to benefit from China's ongoing growth in e-commerce and cloud, although competitive concerns remain.