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Alibaba Starts Global Research Program, Plans to Invest $15B

Zacks

Alibaba Group Holding Limited BABA recently launched a global research program — Alibaba DAMO Academy — aimed at technology advancement. It also unveiled its plan to invest more than $15 billion in research and development over the next three years.

DAMO stands for Discovery, Adventure, Momentum and Outlook. We observe that Alibaba stock has gained 110.3% year to date, substantially outperforming the 54% rally of the industry it belongs to.

The Rationale


Alibaba is looking to improve its technological prowess and build business as an ecosystem of retail, cloud and artificial intelligence. For that, it targets cutting-edge technology through extensive research.

Alibaba Group Holding Limited Revenue (TTM)

The Academy’s focused areas include data intelligence, Internet of Things (IoT), fintech, quantum computing and human-machine interaction.

Alibaba said that the program will help it attain its long-term objective of serving 2 billion customers and creating 100 million jobs in 20 years.

The Approach

The new academy headed by Alibaba Group’s Chief Technology Officer, Jeff ZHANG will focus on opening and management of research and development labs and recruit able scientists and researchers on a global basis.

To start with, the company will open seven research labs in the United States (Bellevue and San Mateo), China (Beijing and Hangzhou) and Russia (Moscow). It aims to employ 100 talented researchers from around the world.

The program aims at increasing technological collaboration worldwide and advancing Alibaba’s technological capabilities. Alibaba’s researchers will team up with leading educational institutions to accomplish this goal.

To start with, DAMO will team up with University of California, Berkeley’s (U.C. Berkeley) RISE Lab on areas such as secured real-time computing.

In the Same League as Other Chinese Firms

With the move, Alibaba joins other Chinese tech biggies who are also opening research labs and collaborating with universities and technology researches in the United States and other countries. Baidu’s Silicon Valley research lab, which is engaged in AI, big data and deep learning related work, is recruiting from leading research universities of the United States.

Last year. Huawei set up an AI research center partnering U.C. Berkeley. Tencent will set up an AI research lab in Seattle.

Our Take

We believe that with this move, Alibaba is trying to tap diverse global talent who could develop technologies, thus giving the company a leading edge over rivals like Amazon AMZN, Apple AAPL, Facebook FB and Google.

By setting up labs worldwide, the company is making sure that it lures talent by asking them to work for it without having to move to China.

Zacks Rank and Stocks to Consider

At present, Alibaba carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Micron Technology, Inc. (MU), Applied Materials (AMAT) and Jabil Inc. (JBL), each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings per share growth rate for Micron, Applied Materials and Jabil is projected to be 10%, 17.1% and 12%, respectively.

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