Alibaba vs Amazon: The race to $500 billion

Key Points
  • Alibaba stock has appreciated more than Amazon this year, and it is within striking distance of surpassing Amazon in terms of market cap.
  • Investors see Alibaba as a proxy for China's fast middle-class growth.
  • But it's also the most-shorted stock on the market, as some investors bet against China.

Amazon has had a good year, but Alibaba has had an even better one — and it's now within striking distance of surpassing Amazon as the world's biggest e-commerce company by market cap.

Amazon is up 30 percent this year while Alibaba's stock has nearly doubled as both companies race to a $500 billion in value.

Bulls have reason to love both. They dominate e-commerce in their respective markets (Amazon in the U.S. and Alibaba in China) and both are expanding into new businesses such as groceries, original content and cloud.

The difference is that the Chinese market — and middle class — is growing much faster and some investors see Alibaba as a proxy for that growth. That's part of the reason the Chinese giant is catching up.

It's also attracted some big names in the hedge-fund space such as David Tepper and Dan Loeb, who have picked up shares this year.

Amazon and Alibaba are getting a lot of love from analysts too — though Alibaba has the edge. Of the 47 brokers that cover the Chinese tech giant, not a single one has a sell rating. Its mean target price is $197.51, about 15 percent higher than where shares stand today, according to FactSet.

Amazon, on the other hand, has one sell rating out of the 44 analysts covering it, and it's about 17 percent from its mean target price of $1,150.46.

Despite stellar runs for both, though, these are some of the most controversial stocks on the market. Especially Alibaba, which is the most shorted company in the world by a mile.

Financial analytics firm S3 Partners crunched the numbers for us.

Short positions in Alibaba total nearly $23 billion. The next most shorted firm, Tesla, draws less than half that in short interest, $10.4 billion. Then it's Apple with $7.1 billion and AT&T with $6.6 billion.

Netflix and Amazon are tied at almost $5 billion.

One of the reasons investors love Alibaba as a proxy for China is the very same reason others hate it. Shorting Alibaba is seen as a way to bet against China's economic growth and broader stock markets.

But this year, those Alibaba bears are in a world of pain thanks to its incredible run. They're down more than $10 billion for the year, and $2.2 billion in August alone as shares have surged 10 percent.

Another good month like that, and it'll be worth more than Amazon.

WATCH: Bulls buy up BABA

Bulls buying up Alibaba