Here’s The Megacap Stock Wall Street Thinks It Will Skyrocket The Most Over The Next 12 Months

Many of the most important stocks in the market are posting considerable gains this year. Nvidia climbed over 160%. Metaplatforms‘ Shares jumped almost 120%. Apple, Alphabet, AmazonAnd Microsoft are all up more than 35%.

Many analysts aren’t as excited about the short-term outlook for the huge stocks. But there’s another one they really like. Here’s the megacap stock that Wall Street thinks will skyrocket the most over the next 12 months.

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Refinitiv recently surveyed 48 analysts who cover a Chinese tech company Alibaba Holdings Group (BABA -0.74%). Twenty-nine of them recommend buying the stock. Another 18 analysts are even more bullish, calling Alibaba a “solid buy.” That leaves just one analyst who advises holding the stock.

How enthusiastic is Wall Street about Alibaba? The analyst’s 12-month average price target for the tech stock reflects 61% upside potential.

One analyst is particularly optimistic about Alibaba’s outlook. The highest price target for the stock is a whopping 110% above the current stock price.

Even the most pessimistic analyst thinks that Alibaba’s share price can rise at least a little. The stock could still rise about 6.5% before hitting Wall Street’s lowest price target.

Why Alibaba Could Soar

In Alibaba’s quarterly update in May, CEO Daniel Zhang pointed to two reasons why analysts are optimistic about his company. Zhang noted that Alibaba’s management team sees “opportunities in China’s consumer recovery from the pandemic and the rapid development of artificial intelligence.”

China has been slowly recovering from the massive impact of the COVID-19 pandemic. Consumer confidence has not fully returned, but it is improving. This bodes well for Alibaba’s huge e-commerce business in the country.

I suspect, however, that Alibaba’s AI opportunities are what Wall Street really loves. And the company plans to give investors an even clearer path to take advantage of these AI opportunities by turning its cloud business into a separate entity.

AI is pushing organizations around the world to the cloud. A standalone cloud business could be more competitive than it is now under Alibaba.

However, we cannot omit Alibaba’s cheap valuation. The stock is currently trading at a forward earnings multiple of less than 9.3. Its price/earnings/growth (PEG) ratio is a very low 0.79.

Risks to consider

Should investors stock up on Alibaba shares just because Wall Street loves them? No. Stock may not be everyone’s cup of tea.

On the one hand, Chinese equities may present higher levels of risk. COVID-19 is just one problem among many. The Chinese government could interfere with Alibaba’s operations in ways that harm shareholders. It is also possible that the United States Securities and Exchange Commission (SEC) will delist Alibaba’s American Depository Shares (ADS) at some point in the future.

Alibaba faces significant competition. Another Chinese tech giant, Tencent Holdingsis a particularly formidable rival.

Unlike most of its counterparts in the US, Alibaba isn’t generating much growth these days. In its most recent quarter, the company’s revenue grew only 2% year over year.

Wall Street might be right

I don’t know if Alibaba’s stock will really jump 61% in the next 12 months as indicated by the consensus price target. However, I think Wall Street might be right on Alibaba overall.

The reopening of the Chinese economy should create tailwinds for the company. Alibaba’s cloud unit is already the biggest player in China’s internet-as-a-service market. I expect the spin-off to improve its competitive position.

I also predict that the rising tide of AI will lift all boats in the long run. Even with the cloud unit spin-off, Alibaba should be a winner with the AI ​​boom.

Of course, the company’s profitability is not where it should be. However, my view is that it should improve in the future. I expect this stock of megacaps to grow much more over the next decade and beyond.