The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

• I reiterate my February 13 buy rating for Alibaba. Alibaba is emerging as a potent rival of Amazon Web Services (AWS) and Microsoft Azure.
• As per Gartner, Alibaba Cloud was no. 1 in the Asia Pacific with 19.6% market share. This is greater than AWS’ 11% and Azure’s 8% market shares.
• The Belt and Road program of China will accelerate Alibaba Cloud’s growth. Developing countries needing Chinese loans will embrace Alibaba Cloud.
• Like it is in the Philippines, Chinese government’s loans comes bundled with multi-billion deals involving Chinese companies.
• As of Q4 2018, Alibaba Cloud is ranked no. 5 global cloud infrastructure services. It has around 1 million paying customers.

Alibaba Group’s (BABA) stock is now trading higher than what it was when I made my February buy rating for it, $187.09 versus $169.40. I still believe this stock can rise back toward its 52-week high of $211.70. Its rapid rise as a cloud computing service provider fortifies Alibaba high double-digit annual growth momentum (5-year average CAGR is 48.62%). Industry tracker Gartner announced that Alibaba Cloud is no. 1 in the Asia Pacific with 19.6% market share.

(Source: Google)

Alibaba Cloud’s market share in Asia Pacific is bigger than the combined shares of Amazon’s (AMZN) AWS (11%) and Microsoft (MSFT) Azure (8%). This market share disparity can even go higher. The Asia Pacific region is vulnerable to the behest loans of China’s Belt and Road Initiative (BRI). China will lend billions of dollars to developing countries. Bundled with the loans are certain provisions. One of these provisions is that countries accepting Belt and Roads loans will have to prioritize Chinese companies’ business offers.

Why China’s Belt And Road Initiative Is Important

Fueled by Belt and Road Initiative, I expect Alibaba Cloud to become the no. 4 in global cloud computing infrastructure services by end of 2019. As of now, Alibaba Cloud is ranked no. 5, behind International Business Machines (IBM).  Unlike the declining revenues of IBM, Alibba has been growing its annual revenue numbers for the last 10 years. Once Alibaba starts compelling Asian countries (who accepted Belt and Road loans) to replace IBM for their public cloud needs, many of them will do so. Alphabet’s Google Cloud (rank no. 3) is also vulnerable to the influence of China’s Belt and Road Initiative.

(Source: Synergy Research)

Getting a larger share of the fast-growing $70 billion/year cloud infrastructure services can further accelerate Alibaba’s already-high revenue CAGR of almost 50%. This high rate of growth justifies the high valuation of BABA. Yes, Alibaba’s 47.62 TTM P/E ratio is relatively expensive when compared to eBay’s (EBAY) TTM P/E ratio of 14.10x. Well, eBay does not have any presence in the commercial cloud computing services.

(Source: Morningstar)

BABA is a buy because its cloud computing services is now a $4 billion/year business. This revenue steam can double-up via the tailwind from China’s generous Belt and Road Initiative. Renting data center and artificial intelligence platforms is going to be profitable business. Just go ask Amazon. AWS’ high-margins is why Amazon can afford its super-low margins approach to online e-commerce. Cloud computing is also business-centric. Alibaba is king of Business-to-Consumer online e-commerce. Alibaba is therefore adept in soliciting new deals from small and large businesses. Going forward, Alibaba can bundle its cloud computing monthly/yearly plans with its business packages for e-commerce. This bundling is unlikely to lower Alibaba’s outstanding 20.08% net margins. Alibaba Cloud caters mostly to businesses/companies, not budget-constraint individuals.

(Source: Morning Star)

Pricing-wise, Alibaba Cloud can win any price war against Amazon Web Services of Google Cloud. Alibaba’s enterprise elastic compute instance cost as low as $40.75/month.

(Source: Alibaba Cloud)

Conclusion

China and the Asia Pacific developing nations are the new growth drivers for cloud computing hardware/software service providers like Alibaba. It is fortuitous that China’s Belt and Road Initiative is favoring Alibaba Cloud in the Asia Pacific Region. We should accumulate more BABA shares before it shoots up beyond $200.   Alibaba Cloud now offers the same products and services that AWS and Azure does now. Alibaba Cloud’s pricing is also competitive against AWS. I really believe Alibaba Cloud will replace IBM as the no. 4 in global cloud infrastructure services by end of this year.

(Source: Alibaba Cloud)

Lastly, Alibaba will continue to dominate China’s cloud computing market. China’s government will never entrust government/corporate data in the hands of AWS, Azure, or Google Cloud. American and European companies may be wary of trusting Alibaba Cloud but Asia, Africa, the Middle East, Latin and Central Americas are large markets than can help Alibaba Cloud become a $10 billion/year tailwind. My strong buy rating for BABA is also because I believe in its bullish 1-year algorithmic market trend forecast score of 150.24. I Know First has a high predictability score of 0.7 on Alibaba’s stock. I Know First therefore has an excellent record of correctly predicting the 1-year market movement of BABA. You should trust the stock-picking wizard of I Know First when it comes to Alibaba.

How to interpret this diagram.

Past I Know First Forecast Success With BABA

I Know First has been bullish on Alibaba’s shares in past forecasts. On February 10, 2019, the I Know First algorithm issued a bullish 1 year forecast for BABA with a signal of 86.23 and a predictability of 0.75, the algorithm successfully forecasted the movement of the BABA share.  Until today, BABA shares have risen by 11.79% in line with the I Know First algorithm’s forecast. See chart below.

This bullish Intel stock forecast was sent to the current I Know First subscribers on February 10, 2019.

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Please note-for trading decisions use the most recent forecast.