This Dividend-Paying AI Stock Is a Buy Despite the U.S.-China Trade War

US dollar and Yuan banknote on USA and China flags by Dilok Klaisataporn via iStock

While President Donald Trump has delayed levying tariffs on Canada and Mexico, the U.S. has officially implemented a 10% tariff on all Chinese imports. Just as we saw in Trump’s first term, China has responded with retaliatory tariffs, stoking fears of a trade war.

The trade war during Trump’s first presidential term led to a selloff in both Chinese and U.S. markets amid fears of business disruption and higher costs. There are several other dimensions to the U.S.-China rivalry, especially concerning global technology and artificial intelligence (AI) dominance.

U.S.-China AI War

The AI war is on full display after Chinese AI startup DeepSeek released its low-cost AI model. While China’s prowess in manufacturing is well-known, DeepSeek claims to have developed its AI model at a fraction of the cost. Trump has already termed DeepSeek’s AI model a “wakeup call” for U.S. companies. And following DeepSeek, Chinese e-commerce giant Alibaba (BABA) announced that its Qwen 2.5-Max AI model performed better than not only DeepSeek-V3, but also OpenAI’s GPT-4o on several benchmarks.

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The timing of Alibaba’s Qwen 2.5-Max release was quite surprising as it came on the first day of the Chinese Lunar New Year holiday – a period when most Chinese people are on a break and the country’s industrial activity takes a backseat during the week-long celebrations. It was, however, an indication of how companies are scrambling to prove that they are very much in the AI race.

4 Reasons to Buy Alibaba Stock 

As expected, BABA shares spiked following the reports of its new AI model. While China’s structural slowdown, the U.S.-China trade war, and domestic competitors eating into its market share are headwinds for BABA, I find the stock to be a buy. Let’s discuss why.

  • Alibaba’s Growth Is Expected to Rebound: As China’s stimulus trickles down to the economy, its country’s retail sales should also pick up. Analysts expect Alibaba’s sales to grow by 8.1% year-over-year in the next fiscal year which will end in March 2026 while its per-share earnings are expected to rise by 18%.

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  • AI and Cloud Business Might Grow at a Fast Pace: Alibaba’s cloud business continues to benefit from growing AI spending in China. The company might also see a valuation rerating as it advances its AI efforts.
  • Regulatory Headwinds Are in the Rear-View Mirror: Alibaba was among the worst affected by China’s tech crackdown. However, the worst is behind it and if anything, I would expect the country to back its burgeoning tech sector amid the AI war with the U.S.
  • Business Restructuring: Over the long term, Alibaba is a play on business restructuring – potentially listing its six business segments separately – which would unlock value. While that process is on hold for now due to U.S. chip export restrictions, Alibaba is expected to eventually return to its plans. On a similar note, while the company does not have any near-term plans to list its fintech subsidiary Ant Financial, it might consider doing so in the future.

BABA Stock Forecast

Sell-side analysts are quite bullish on Alibaba. Of the 19 analysts actively covering the stock, 17 have rated it a “Strong Buy,” while the remaining two rate BABA as a “Hold” or some equivalent. Alibaba’s mean target price of $120.16 is almost 22% higher than the Feb. 3 closing price, while the Street-high target price of $145 is nearly 47% higher.

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Alibaba Also Pays a Dividend

While most AI plays either don’t pay a dividend or have meager payouts, Alibaba announced an annual dividend of $1 per American Depositary Receipt (ADR) last year which transforms into a yield of over 1%. While not too high, the yield is better than most U.S.-based tech giants including Apple (AAPL), Meta Platforms (META), and Nvidia (NVDA)

Moreover, Alibaba investors might also receive a special dividend this year. Last year, the company paid an extra dividend of $0.66 per share which it attributed to “proceeds from disposition of certain financial investments.” Alibaba has disposed of some of its non-core assets over the last couple of months and might top up this year’s dividend with a special payout as it did in 2024.

All said, while the U.S.-China trade war is a negative for the Chinese economy, at less than 11x its expected earnings over the next 12 months, BABA looks like a cheap AI play with attractive risk-reward, especially for those investors who can digest the near-term volatility. 


On the date of publication, Mohit Oberoi had a position in: AAPL , BABA , NVDA , META . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.