Two of the world's most influential e-commerce and cloud computing giants continue to shape the digital landscape, albeit from different hemispheres. Alibaba Group (BABA Quick QuoteBABA - Free Report) recently reported revenues of RMB 247.65 billion ($34.6 billion) in its June quarter, while Amazon (AMZN Quick QuoteAMZN - Free Report) posted stronger-than-expected second-quarter results with revenues of $167.7 billion. Both companies have expanded far beyond their e-commerce roots, building massive cloud computing divisions, artificial intelligence capabilities, and diverse technology ecosystems that serve millions of customers globally.

While Alibaba is benefiting from China's economic recovery initiatives, Amazon faces headwinds from tariff policies and competitive pressures. Both companies are investing heavily in AI, viewing it as the next frontier for growth, yet they face distinct challenges in their respective markets.

Let's delve deep and closely compare the fundamentals of the two stocks to determine which one is a better investment now.

The Case for BABA Stock

Alibaba's recent financial performance reveals a company struggling to maintain momentum amid intensifying competition and regulatory pressures. Despite cloud revenues growing 26% year over year to RMB 33.4 billion in the June quarter, BABA battles aggressive competitors like PDD Holdings and navigates a complex regulatory environment.

Alibaba's core e-commerce business, accounting for more than 50% of revenues, showed mixed results with adjusted profit coming under pressure as the company invests heavily in instant commerce to compete with rivals. The company's decision to prioritize market share over profitability in the critical quick-delivery segment signals defensive positioning rather than market dominance. Free cash flow turned negative at an outflow of RMB 18.8 billion compared to RMB 17.4 billion inflow in the prior year, mainly due to cloud infrastructure spending and instant commerce investments.

While AI-related product revenues maintained triple-digit growth for eight consecutive quarters, this remains a relatively small portion of total revenues. Alibaba's commitment to spend $53 billion on AI infrastructure over three years represents a massive capital allocation gamble at a time when the company faces margin pressure across its traditional businesses. The regulatory uncertainty surrounding Chinese technology companies adds another layer of risk, particularly given Beijing's unpredictable policy shifts that have repeatedly impacted the sector. Geopolitical tensions between the United States and China create additional headwinds, with the Trump administration having called for delisting Chinese stocks, making Alibaba's long-term prospects increasingly uncertain for international investors.

The Case for AMZN Stock

Amazon continues demonstrating the resilience and diversification that have made it a dominant force in global technology. The company's second-quarter revenues of $167.7 billion represented 13% year-over-year growth, exceeding analyst expectations, with particular strength in its high-margin cloud computing division AWS, which generated $30.87 billion in revenues. This performance showcases Amazon's ability to maintain steady growth despite macroeconomic headwinds and competitive pressures.

AWS remains the crown jewel, accounting for 19% of total revenues but delivering 63% of operating profit, with strong demand for AI services, including Bedrock and SageMaker, driving continued expansion. Amazon's comprehensive AI strategy includes the new Bedrock AgentCore platform for deploying AI agents at scale, supported by more than $100 billion in planned capital expenditure for 2025, with the vast majority focused on AI capabilities. The company's recent launch of Alexa+, powered by generative AI, demonstrates continued innovation in consumer AI applications.

Amazon's advertising business showed robust 19% growth to $13.92 billion, while its online stores revenues grew 11% to $61.5 billion, indicating healthy consumer demand despite economic uncertainty. The deployment of Amazon's 1 millionth warehouse robot, coupled with the new AI-powered DeepFleet coordination system that increases robotic efficiency by 10%, exemplifies the company's operational excellence and technological leadership. Management's guidance shows confidence in navigating current challenges, with revenues projected to grow 10-13% in the third quarter despite tariff concerns. Amazon's proven track record of reinvesting for long-term growth, global infrastructure advantage, and leadership position across multiple high-growth segments position it well for sustained expansion.

Valuation and Price Performance Comparison

Both companies trade at premium valuations, though Amazon commands a significantly higher multiple. Alibaba's valuation metrics show a 2.2x price-to-sales ratio, representing steep discounts compared to Amazon's 3.23x price-to-sales. Amazon's higher valuation reflects its superior market position, predictable cash flows, and lower regulatory risks, justifying the premium despite seemingly stretched metrics.

BABA vs. AMZN: P/S Ratio

Image Source: Zacks Investment Research

While Alibaba's stock surged 59.3% in the year-to-date period, significantly outperforming Amazon's modest gains, this largely reflects recovery from previously depressed levels rather than fundamental outperformance.

BABA vs. AMZN Year-to-Date Performance

Image Source: Zacks Investment Research

Conclusion

Amazon holds a decisive advantage over Alibaba across multiple critical dimensions that determine long-term investment success. AWS maintains a commanding 30% cloud market share globally versus Alibaba Cloud's 4%, providing Amazon with superior scale and competitive positioning in the crucial high-margin cloud segment. Amazon's diversified revenue streams, proven execution track record, and massive AI investments totaling more than $100 billion create sustainable competitive advantages that Alibaba struggles to match. While Alibaba trades at attractive valuations, the combination of regulatory uncertainty, intense domestic competition, geopolitical risks, and deteriorating free cash flow generation makes it a riskier proposition. Investors should track Amazon stock for attractive entry opportunities while avoiding Alibaba's structural challenges and staying away from the Chinese e-commerce giant until fundamental improvements materialize. AMZN currently carries a Zacks Rank #3 (Hold), whereas BABA has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.