Alibaba (BABA Quick QuoteBABA - Free Report) and Amazon (AMZN Quick QuoteAMZN - Free Report) stand as two dominant forces in global e-commerce, yet their trajectories in late 2025 reveal starkly different investment narratives. Both companies have expanded far beyond their retail roots into cloud computing, AI and digital services, making them technology conglomerates as much as e-commerce platforms. Their recent earnings reports and strategic announcements have crystallized the contrasts between these giants.

Alibaba operates primarily within China's complex regulatory environment while pursuing international expansion, whereas Amazon maintains its stronghold in developed Western markets while aggressively investing in AI infrastructure. Both companies are pouring billions into cloud computing and AI capabilities, yet their execution, market positioning, and forward momentum differ significantly. As investors weigh these opportunities in December 2025, understanding the fundamental strengths and weaknesses of each becomes critical.

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

Alibaba's September quarter 2025 results showed cloud revenues surging 34% year over year, though overall revenues grew just 5% to 247.8 billion yuan ($35 billion). The company posted a 16% rise in Chinese e-commerce revenues, but net income plummeted by approximately half as spending on consumer subsidies and data centers intensified. While management touts AI-related revenues, maintaining triple-digit growth for consecutive quarters, the reality remains troubling: the company's aggressive investments have yet to translate into sustainable margin expansion.

The company's push into quick commerce — offering instant delivery and one-hour fulfillment — requires enormous capital outlays with uncertain returns. Free cash flow turned sharply negative to a RMB 21.8 billion outflow, reversing from a RMB 13.7 billion inflow in the prior year. This cash burn raises questions about when, or if, these investments will generate adequate returns.

China's macroeconomic headwinds present additional challenges. Domestic consumer spending remains under pressure, and Alibaba faces intensifying competition from rivals, including JD.com and Meituan, in a three-way battle that has compressed margins. The company's exposure to regulatory uncertainties within China adds another layer of risk that Western investors must consider. Recent White House allegations regarding cloud services and data sharing with Chinese authorities, though strongly denied by Alibaba, have created political headwinds that could impact the stock's valuation multiple.

The company's Singles' Day performance and broader retail trends suggest a slow-growth environment for domestic e-commerce, making Alibaba's aggressive spending strategy questionable. While the cloud business shows promise with 34% growth, it operates in an increasingly competitive landscape with pricing pressures that threaten margin realization on heavily capitalized infrastructure.

The Case for AMZN

Amazon's third-quarter 2025 results demonstrated exceptional momentum, with revenues climbing 13% year over year to $180.2 billion. More impressively, AWS revenues accelerated 20% year over year to $33 billion, marking the fastest growth pace since 2022. Net income surged 38% to $21.2 billion, or $1.95 per diluted share, exceeding estimates of $1.57 per share. This re-acceleration validates Amazon's massive investments in AI infrastructure and demonstrates that customer demand for cloud services and AI workloads remains robust.

Amazon secured a transformative multi-year strategic partnership with OpenAI valued at $38 billion over seven years, positioning AWS to run large portions of advanced AI workloads with access to hundreds of thousands of Nvidia GPUs. This contract represents one of the largest AI infrastructure agreements ever signed and confirms AWS can compete effectively with Microsoft Azure and Google Cloud in high-end AI services. Amazon's Trainium2 custom chips reached a multi-billion-dollar revenue run rate with growth above 150% quarter over quarter, demonstrating comprehensive innovation across the AI stack.

Beyond cloud computing, Amazon's retail business shows sustained strength. North America segment sales increased 11% to $106.3 billion, while International segment sales grew 14% to $40.9 billion. Amazon's operational efficiency improvements through robotics, AI-powered shopping assistants like Rufus, and enhanced inventory placement demonstrate ongoing innovation in its core retail operations.

Management guided for fourth-quarter 2025 revenues between $206 billion and $213 billion, with operating income expected at $21-$26 billion, signaling confidence heading into the critical holiday quarter. AWS segment operating income reached $11.4 billion compared with $10.4 billion in the prior year. CEO Andy Jassy emphasized that AI investments are touching every corner of Amazon's business. Amazon expects approximately $125 billion in capital expenditures for 2025, up from an earlier estimate of $118 billion, with further increases anticipated in 2026. Crucially, operating cash flow increased 16% to $130.7 billion for the trailing 12 months, though free cash flow decreased to $14.8 billion due to the $50.9 billion year-over-year increase in property and equipment purchases, but Amazon maintains positive free cash flow while generating tangible results in revenue growth and market share gains.

Valuation and Price Performance Comparison

Both Amazon and Alibaba trade at premium valuations, but Amazon's multiple appears more justified by its superior fundamentals. Amazon currently trades at a forward P/E ratio of 30.08, representing a significant valuation multiple. Alibaba trades at a comparatively lower forward P/E of 18.63.

BABA vs. AMZN: P/E F12M Ratio

Image Source: Zacks Investment Research

Amazon's premium valuation reflects its dominant 29% market share in global cloud infrastructure, 20% AWS growth acceleration versus Alibaba's cloud segment at 34% but from a smaller base, positive $14.8 billion trailing 12-month free cash flow versus Alibaba's negative RMB 21.8 billion quarterly outflow, and clear monetization pathways including the $38 billion OpenAI deal. The company operates in stable regulatory environments with transparent governance. Alibaba's lower multiple reflects legitimate concerns about its 78% adjusted EBITA collapse, 53% net income decline, negative free cash flow trajectory, China's macroeconomic challenges with only 5% overall revenue growth, and geopolitical risks that Western investors rightfully discount.

Past six-month price performance tells a revealing story. While Alibaba's stock surged 42.9% in the past six-month period, significantly outperforming Amazon's modest gains, this largely reflects recovery from previously depressed levels rather than fundamental outperformance.

BABA Outperforms AMZN In 6-Month Period

Image Source: Zacks Investment Research

Conclusion

Amazon holds better upside potential driven by AWS momentum reaching $33 billion quarterly revenues, diversified revenue streams across retail, cloud, and advertising, and operational excellence delivering 38% net income growth. Investors should buy Amazon stock for an attractive entry into a dominant technology leader with proven execution, while staying away from Alibaba stock until the company demonstrates it can convert its substantial investments into sustainable profitability and reverse its negative cash generation trajectory. AMZN currently carries a Zacks Rank #2 (Buy), 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.