China's e-commerce landscape is dominated by two formidable players: Alibaba Group (BABA Quick QuoteBABA - Free Report) and PDD Holdings (PDD Quick QuotePDD - Free Report) . Alibaba, the pioneer that revolutionized online shopping in China through platforms like Taobao and Tmall, has long been synonymous with Chinese e-commerce. PDD Holdings, the parent company of Pinduoduo and international platform Temu, has emerged as a disruptive force with its innovative social commerce model and aggressive global expansion.

Both companies operate in the world's largest e-commerce market and have expanded internationally, yet they represent distinctly different approaches to capturing consumer spending. Alibaba offers a comprehensive ecosystem spanning e-commerce, cloud computing, digital media, and logistics, while PDD focuses on value-driven commerce through gamification and group-buying mechanics.

As China's economy navigates post-pandemic recovery and consumption patterns evolve, investors are reassessing which company offers superior growth prospects. 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 maintains its position as China's e-commerce infrastructure backbone, with its platforms facilitating hundreds of billions in gross merchandise value annually. The company's diversified business model provides multiple revenue streams, with cloud computing through Alibaba Cloud representing a significant growth opportunity as enterprises accelerate digital transformation. In the second-quarter fiscal 2026 results, Alibaba reported steady performance across its commerce segments, with Taobao and Tmall Group continuing to generate substantial cash flows that fund investments in technology and new initiatives.

The company's strategic repositioning under management has focused on improving customer experience and merchant support. Alibaba has invested heavily in logistics infrastructure through Cainiao Network, enhancing delivery speed and reliability — critical factors in competitive e-commerce markets. Their artificial intelligence capabilities, including the Tongyi Qianwen large language model, are being integrated across business units to improve search algorithms, personalized recommendations, and merchant tools, potentially driving higher conversion rates and platform efficiency.

However, Alibaba faces notable headwinds that might temper its growth outlook. The company's revenue growth has decelerated considerably compared to its historical expansion rates, reflecting market maturation and intensified competition from platforms like PDD and JD.com. Regulatory pressures, while having eased somewhat, continue casting uncertainty over the company's operations and strategic flexibility. Management has acknowledged ongoing challenges in maintaining profitability margins amid aggressive competitive dynamics.

The company's international expansion efforts, particularly through AliExpress and Lazada, have shown mixed results and face formidable competition from PDD's Temu, which has captured significant global market share with its ultra-low pricing strategy. Alibaba's diversification into cloud computing and digital entertainment, while providing revenue streams beyond core commerce, requires continued heavy investment with uncertain return timelines. The company's AI initiatives represent promising long-term opportunities but have yet to translate into substantial revenue acceleration.

The Case for PDD Stock

PDD Holdings has demonstrated remarkable momentum, establishing itself as a genuine challenger to Alibaba's dominance through innovation and execution excellence. The company's domestic Pinduoduo platform continues gaining market share by addressing consumer demand for value without compromising quality, particularly resonating with price-conscious shoppers in lower-tier cities. More impressively, Temu's international expansion has exceeded expectations, rapidly scaling across North America, Europe, and emerging markets with its direct-from-manufacturer model offering compelling prices. Management's second-quarter 2025 updates indicate Temu's user growth remains robust, validating global appetite for value-oriented e-commerce.

PDD's operational efficiency stands out as a key competitive advantage. The company maintains healthy profitability while investing aggressively in growth, demonstrating superior unit economics compared to peers pursuing international expansion. Their technology infrastructure, built with modern architecture, enables rapid scaling and experimentation. Management's forward-looking statements emphasize continued investment in agricultural initiatives that support farmers and rural communities — a strategic focus strengthening supplier relationships and enhancing PDD's value proposition. The company's AI and machine learning capabilities power sophisticated recommendation systems, driving engagement and conversion, with ongoing enhancements improving matching efficiency.

The growth runway for PDD appears substantial. Temu's international presence remains in early stages across many markets, offering multi-year expansion potential. Domestically, Pinduoduo continues penetrating higher-tier cities and expanding category offerings. Management recently announced share repurchase programs, underscoring confidence in the business trajectory while balancing growth investments with shareholder returns. Recent announcements highlight partnerships enhancing logistics capabilities and merchant support systems, addressing previous platform limitations. While acknowledging intensifying competition and sustained platform investment needs, PDD's agile culture and founder-led vision provide confidence in strategic execution. The company's focus on high-quality development rather than growth-at-any-cost positions it favorably as the industry matures.

Valuation and Price Performance Comparison

The valuation contrast between these two e-commerce giants presents a compelling narrative. PDD trades at a notably discounted valuation compared to Alibaba, with a forward price-to-earnings (P/E) ratio that appears attractive relative to its growth profile. BABA trades at a forward P/E of 19.57x compared with PDD, which trades at 11.63x forward earnings. While Alibaba commands what appears to be a relatively premium valuation on certain metrics, its slower growth rates and heightened competitive pressures raise questions about whether this premium is warranted.

PDD’s Valuation is Attractive Than BABA

Image Source: Zacks Investment Research

Recent price performance further illustrates the diverging investor sentiment. BABA shares have surged 113.6% year to date, significantly outperforming PDD's 37.9% gain over the same period. This largely reflects recovery from previously depressed levels rather than fundamental outperformance. Both have outperformed the broader Zacks Retail-Wholesale sector.

BABA Outperforms PDD Year-to-date

Image Source: Zacks Investment Research

Conclusion

PDD Holdings represents a superior investment opportunity in Chinese e-commerce, offering compelling advantages across multiple dimensions. The company's exceptional growth momentum through Temu's international expansion, combined with Pinduoduo's sustained domestic strength, delivers superior revenue and earnings growth potential. PDD's advanced AI capabilities, asset-light operational model, and proven management execution provide sustainable competitive advantages. Investors should buy PDD stock to capitalize on its transformation into a global e-commerce powerhouse, while adopting a hold stance on BABA or waiting for better entry points given its mature growth profile and ongoing competitive challenges. PDD currently sports a Zacks Rank #1 (Strong Buy), whereas BABA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.