The Best Tech Stock That Not Nearly Enough People Are Talking About, and Why You Should Be

2024 has generally been a great time to own tech stocks. For example, owning well-established companies like Nvidia , Amazon , and Alphabet would have given investors 30% to 150% returns in just the first half of the year.

These companies share some commonalities. They are leaders in their respective fields, and their futures look bright as they ride significant trends like artificial intelligence (AI).

However, not all top tech stocks have performed well during the year, so investors willing to dig deeper might still find good opportunities. This article will explore one of these companies: Alibaba (NYSE: BABA) .

Image source: Getty Images.

Why Alibaba's stock underperformed in 2024

In a year when the Nasdaq Composite has delivered 20% to date, Alibaba's stock performance has been hugely disappointing, down by 4% during the period.

There were various reasons for the poor stock performance. Internally, Alibaba has undergone massive turnaround efforts since 2023. It restructured its business units, laid off staff, and even replaced its CEO and Chairman. With so much going on, investors have good reasons to be concerned about the giant's ability to emerge stronger in the long run after these significant events.

Externally, Alibaba has seen enormous competition from the likes of PDD Holdings ' Pinduoduo and Douying, which has affected its e-commerce performance. For perspective, e-commerce revenue grew just 5% in the fiscal 2024 year (ended March 31). In comparison, Pinduoduo grew revenue by 90% in 2023. While Alibaba's colossal size was a massive drag on growth, investors were generally dissatisfied with the large discrepancy.

Besides, investors remain incredibly pessimistic about Chinese companies in general. Political and regulatory risks, cultural differences, and the ongoing tension between China and other major economies led by the United States have made it almost impossible to invest in Chinese companies. This might explain why, when most tech companies exposed to artificial intelligence (AI) have gained enormous interest among investors, Alibaba's stock has largely remained a laggard.

However, there is still tremendous value

One of investors' biggest complaints about Alibaba is its inability to grow its crown jewel e-commerce business, led by Taobao and Tmall. It's already huge, and the intense competition from newcomers and the neglect by previous management have all contributed to the weak performance.

Fortunately, things have changed significantly as the new management team (led by the new CEO, Eddie Wu) has started to execute its turnaround plan. The focus is simple -- putting users first to build a thriving, all-inclusive e-commerce ecosystem. Historically, Alibaba's main focus was to serve the merchants, so the shift in focus could be game-changing in the long run.

Besides, it is essential to note that despite all its problems, Alibaba remains the leader in the Chinese e-commerce industry with more than 45% market share. This business segment is also enormously profitable, generating 189 billion yuan ($26 billion) in earnings before interest, taxes, and amortization (EBITA) in the fiscal year 2024.

Beyond its e-commerce business, Alibaba counts on its cloud computing business to rekindle its growth trajectory. Like the e-commerce business, Alibaba Cloud is the most significant cloud player in China, with a 34% market share. This business stands to benefit in the long run, riding on tailwinds like AI, the Internet of Things, and the ongoing migration of computing to the cloud.

Then we have other smaller but fast-growing segments, like logistics and overseas e-commerce, within the giant that are growing rapidly. For example, Cainiao Logistics grew by 28%, while Alibaba's international e-commerce grew by 46% in the fiscal year 2024.

With so many valuable assets under its umbrella, Alibaba needs to do just one thing: execute well to unlock the value of these assets. With its new leadership team, the tech giant has a good shot at doing that.

What it means for investors

It's been a rough time for Alibaba in the last few years as it went through massive internal and external challenges. Still, there are plenty of reasons to like the company. It's still the largest e-commerce platform in China, and its cloud computing business is well-positioned to regain its growth trajectory by leveraging trends like AI.

While it will take a while for its turnaround efforts to bear fruit, investors are getting a reasonably good deal since the stock trades at a low valuation. It has a price-to-sales (P/S) and price-to-book (P/B) ratio of 1.4 and 1.3, respectively. By comparison, Amazon trades at P/S and P/B ratios of 3.5 and 9.3.

This stock is not for everybody, but those who are willing to handle the additional risks might find Alibaba stock highly attractive.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Lawrence Nga has positions in Alibaba Group and PDD Holdings. The Motley Fool has positions in and recommends Alphabet, Amazon, and Nvidia. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy .