By Alibaba (BABA) stock price continued its strong recovery after the company unveiled new artificial intelligence (AI) products in a major event in China. It rose by over 3% in Hong Kong while its US ADRs soared by 4% in the premarket. It reached to a high of $88.28, its highest point since September 6.
Alibaba boosts its AI solutions
Alibaba, one of China’s biggest technology companies, surged after it accelerated its AI solutions. The company unveiled a new open-source AI model and a text-to-video AI technology as it seeks to catch up with most of its American rivals.
Alibaba also lagged behind Baidu, China’s biggest search engine company. Similarly, Bytedance, the parent company of TikTok, has been investing heavily in artificial intelligence. Most recently, it launched a new text-to-video app for Chinese users.
Tech companies like Amazon, Microsoft, and Google have been investing heavily on the AI technology. Amazon has invested in Anthropic, the parent company of Claude, a top ChatGPT rival.
Microsoft invested in OpenAI, the parent of ChatGPT. And most recently, it was reported that Apple and Nvidia were considering to invest in OpenAI at a $100 billion valuation. A few days later, it was revealed that its valuation has shot up to $150 billion.
Chinese companies have lagged behind their American peers like Google, Microsoft, and Amazon, partly because of the limits of semiconductor exports by the American government.
The challenge, however, will be how to monetize this AI technology. According to The Information, ChatGPT has over 11 million paying customers and is generating over $227 million every month. Its annual revenue is estimated at $2.7 billion, meaning that a $150 billion valuation is highly expensive.
Alibaba is working on a turnaround
Alibaba’s AI efforts are part of the management’s turnaround strategy after the company lost billions of dollars in valuation.
As part of its turnaround, the management has slashed thousands of workers, with Bloomberg estimating that the number of workers fell by 20,000 last year. These layoffs have likely continued this year.
The company has also focused on returning funds to investors through share buybacks. Its outstanding shares have fallen from over 2.71 billion in 2020 to 2.3 billion. These repurchases are intended to improve its earnings per share.
The most recent quarterly results showed that Alibaba’s business was still a shadow of its former self. Gone are the days of regular double-digit revenue growth. Instead, its revenue rose by 4% in the second quarter to $33.47 billion.
The company’s profitability also continued falling, with its adjusted EBITDA falling by 1% to $6.19 billion.
Analysts expect that Alibaba’s revenue will rise by 9.3% to over $141.87 billion this year and $154 billion in 2025. They also believe that its profit per share will increase to $8.85 from last year’s $9.58.
BABA’s cloud computing business is slowing
One of Alibaba’s key challenges is that its cloud computing business is not doing well. Its revenue rose by 6% to over $3.6 billion. In the same period, Microsoft Azure and Amazon AWS revenues rose by 24% and 17%, respectively.
While Alibaba does not publish its cloud revenue by region, analysts believe that most of its clients are in China where it also competes with firms like Baidu, Huawei, and Tencent.
Many foreign companies and governments, especially in the US and Europe, are always afraid of using Chinese cloud providers because of the ongoing geopolitical tensions.
Alibaba’s other challenge is that the Chinese economy is different from what it was a few years ago. In this period, many Chinese people were getting wealthy, thanks to their real estate investments.
Today, many of them are struggling because of the real estate’s collapse. As a result, retail sales have continued falling while the unemployment rate remains significantly high.
Analysts expect that the Alibaba stock price will continue rising in the near term. The average target is $108.2, about 25% from the current level. 47 of the 48 analysts tracking the company have a buy rating on the stock.
The most bullish analysts are from Barclays, JPMorgan, and Baird, who have an overweight rating. UBS, Goldman Sachs, and Jefferies
Read more: Buy Alibaba stock for a 50% return over the next twelve months: Loop Capital
Alibaba stock price analysis
The weekly chart shows that the BABA stock price has been in a tight range in the past few months. Along the way, it has formed a symmetrical triangle chart pattern shown in blue. It has now moved slightly above this triangle as it neared the triangle’s confluence level, as we predicted.
The stock has moved slightly below the 23.6% Fibonacci Retracement point at $114.50. It has also moved slightly above the 50-week moving average. Therefore, the outlook for the stock is bullish, with the initial resistance point to watch being at $100. A break above that level will raise the probability of moving to the 23.6% point at $114.5.
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