Alibaba Shares Jump 7% after Short Seller Citron Eyes Over 20% Surge, Bullish on AI Cloud

TMTPost --  The American depositary receipts (ADRs) of Alibaba Group jumped more than 7%  to US$86.70 on Thursday, outperforming the stock benchmark S&P 500 that closed 0.21% lower. The stock rally came after Citron Research, one of the most well-known short sellers targeting U.S.-listed Chinese shares, cheered huge upside potential for the Chinese e-commerce giant.

Alibaba shares are gaining momentum and should cruise past US$100.00, Citron posted on social media platform X, formerly known as Twitter. Based on Citron's expectation, Alibaba shares would surge at least nearly 24% from theire close on Wednesday. 

Citron showed bullish on Alibaba for its artificial intelligence (AI) technology-powered cloud business and large language model (LLM) and anticipating the company will emulate the success of Amazon and Microsoft in China. Noting investors recognizing Alibaba’s AI cloud prospects and strategic investments, Citron highlighted Tongyiqianwen spearheading China’s LLM, attaching a screenshot of test results by OpenCmpass, an open platform providing comprehensive evaluation for large models.

Citron expressed optimism on Alibaba days after the company released financial results showcasing stellar profitability of its cloud business. Alibaba revenue grew 7% year-over-year (YoY) to RMB221.87 billion (US$30.73 billion) in the fourth fiscal quarter ended March 31, 2024, beating analysts’ estimated RMB 219.79 billion. The non-GAAP adjusted EBITA, excluding share-based compensation expense, impairment of intangible assets and goodwill and certain other items, dropped 4.1% YoY to RM30.81 billion, stil better than the expected RMB30.38 billion. By segment, Alibaba Cloud Intelligence (Alibaba Cloud) generated RMB25.595 billion that quarter, up 3% YoY, and adjusted EBITA surged 45% YoY to RMB1.43 billion.

Alibaba said its core public cloud offerings, which include products such as elastic compute, database and AI products, recorded double-digit YoY growth in revenue, and AI-related revenue increased triple-digit YoY. Overall revenue of Alibaba Cloud excluding Alibaba-consolidated subsidiaries decreased slightly YoY as the company transitioned away from low-margin project-based revenues.The company expected the strong revenue growth in public cloud and AI-related products will offset the impact of the roll-off of project-based revenues.

Alibaba Cloud has established strategic partnerships with the vast majority of leading foundational model companies in China, and at the same time, Alibaba's proprietary foundational model, Tongyi, released a 110 billion parameter model late April, which is on par with the top open-source models globally, the CEO Eddie Wu, or Wu Yongming, introduced at an earnings call. Wu said Alibaba will deeply integrate its Tongyi large model with other advanced AI infrastructure to realize synergies and optimization across software and hardware. “We are confident that Alibaba Cloud's revenue, including -- excluding internal customers, will return to double-digit growth in the second half of the 2025 fiscal year,” said Wu.

As to compositioin of the Alibaba Cloud revenue growth driver behind AI-related products, Wu told analysts the double-digit growth of the cloud business continues to be offset by the diminishing but still ongoing impact of that low-margin project-based business. Alibaba expects to see complete disapperance of that drag within one or two quarters into the new fiscal year, and as it continues to phase out that low margin project based business, revenues are expected to grow faster, primarily driven, again, by public cloud and by AI-enabled offerings.