Amazon.com, Inc. (NASDAQ:AMZN) and Alibaba Group Holding Limited (NYSE:BABA) have more in common than their e-commerce roots suggest. Both are now making enormous bets on artificial intelligence, and cloud computing is emerging as an increasingly important part of their investment theses. But the market is valuing the two companies differently, and their earnings trajectories are beginning to diverge.
Amazon is trading at about 23.6x forward earnings, compared with roughly 17.9x for Alibaba. Wall Street also expects both companies to deliver strong earnings growth, although the trajectory is different. Amazon is coming off a period of rapid earnings expansion partly on the back of its successful strategic investments, while Alibaba is expected to accelerate sharply from a much lower base.
The interesting question is whether that gap is justified, or whether investors are underestimating what Alibaba’s AI investments could eventually do for its business.
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