Morgan Stanley names its top pick in Chinese tech — and gives it over 70% upside

Published Wed, Jan 11 20238:01 PM ESTUpdated Thu, Jan 12 20232:05 AM EST

Several investment banks have become more bullish on China's tech sector in recent weeks — and Morgan Stanley's one of them . "We note the improving regulatory environment for the overall Internet industry after a period of tightening in late 2020 and 2021. We see early signs that the environment may be easing given the Chinese government's recent support for the private sector, particularly the platform economy," Morgan Stanley's analysts, led by Gary Yu, wrote in a note this month. The investment bank has named Alibaba its "top pick" in the Chinese tech sector — for the first time in three years. "Alibaba – top pick in China's Internet industry in 2023. We see multiple catalysts (reopening, cost optimization, easing regulatory environment, cloud reacceleration, and valuation) driving the most attractive risk-reward in the industry," the bank added. 'Underappreciated' name He noted that Alibaba has borne the brunt of the regulatory crackdown over the past two to three years and easing regulations could lead the stock to beat its peers. "Specifically, any potentially positive regulatory event regarding Ant – e.g., restructuring, licensing, removal of over-hang via regulatory fine, or even resumption of listing process – could be a significant positive catalyst to re-rate [Alibaba]," the bank said. Alibaba is also well placed to benefit from a consumption recovery in China and continued operational efficiency improvement across segments, according to Morgan Stanley. That's been "underappreciated" by the market, the bank added. Morgan Stanley sees more upside for Alibaba when it comes to earnings, forecasting earnings before interest, taxes, depreciation and amortization (EBITDA) growth of 18% into 2026. To top it off, the bank believes the stock is trading at an "attractive valuation," given its ability to generate "strong" cash flow and its "stable" share repurchase program. Morgan Stanley has a base case price target of $150 on Alibaba, and an upside to $200 per share in a bull case. Shares in Alibaba closed at around $115 in U.S. trading on Jan. 10, representing a 74% potential upside to Morgan Stanley's bull case price target. The stock has gained more than 16% over the past five trading sessions, beating the tech-heavy Nasdaq Composite, which rose about 2.6% in the same period. — CNBC's Michael Bloom contributed to reporting