Summary
Alibaba Group is undergoing significant restructuring, with close associates of co-founder Jack Ma returning to leadership roles and Daniel Zhang leading the cloud intelligence division.
Alibaba needs to leverage its momentum in generative AI to bolster its cloud offerings and compete against China AI leader Baidu.
Despite regulatory fines and economic setbacks, investors are returning to Alibaba, anticipating further stimulus measures by the Chinese government and the potential for growth in the company's cloud division.
I gleaned that dip-buying sentiments in BABA have been constructive over the past two months, suggesting that momentum investors could return moving ahead.
ABA remains attractive and well below its critical resistance zone of $125. Act fast before the rest of the buyers come on board.
Wang He
Alibaba Group Holding Limited $Alibaba(BABA)$ investors dug deep and found resolve over the past two months as significant restructuring moves continued for the company.
Keen investors should recall that close associates of co-founder Jack Ma have returned to helm the group, with Eddie Wu and Joseph Tsai on schedule to assume the Group CEO and Chairman roles, respectively.
As such, it has allowed incumbent Daniel Zhang to lead Alibaba's cloud intelligence division as China's e-commerce and cloud platform leader looks to rejuvenate its stalled growth momentum.
It's also seen as an opportunity for Alibaba to untether its cloud division from the group with a spin-off in place based on its restructuring plans. Notably, Zhang's move to helm cloud intelligence should help bolster its ability to gain more confidence from its customers. Accordingly, the elevated independence "increases the probability of winning business from Alibaba Group's competitors."
I believe Alibaba needs to focus on leveraging its momentum in generative AI to bolster its cloud offerings as it looks to compete against China AI leader Baidu $Baidu(BIDU)$. I discussed in a recent BIDU article highlighting why Baidu is increasingly confident that its leadership in AI could help deliver share gains against its cloud computing rivals in China.
Therefore, Zhang's move to lead cloud intelligence could be viewed as an aggressive move by Alibaba to take the game to Baidu as China's cloud computing leader. While the opportunities are still nascent, Alibaba cannot afford to allow Baidu to easily gain share, even as Alibaba needs to navigate slowing growth in its e-commerce business.
Hence, investors are urged to follow Alibaba Cloud's developments closely, as it could be a pivotal driver to help mitigate the slowdown in its e-commerce business.
China's economic recovery has petered out further in June, as seen in the recent economic data releases. However, dip buyers returned confidently over the past month, likely anticipating further stimulus measures by the Chinese government to spur spending.
Bloomberg reported recently that the Chinese authorities indicated "additional economic support measures will be implemented following the extension of loan relief for developers in the ailing property market." As such, I assessed that investors are baking in the potential for such measures to lift consumer spending in the second half. Chinese consumers have struggled with the negative property wealth effect, and China's youth dealt with the uncertainties of high unemployment.
Moreover, the decision by China regulators to fine Ant (Alibaba's fintech arm) to the tune of nearly $1B could also have lifted optimism that the regulatory overhang could be over. While Ant's valuation has collapsed about 70% from its pre-IPO valuation in 2020, the move should pave the way for Ant to pursue its IPO moving ahead.
Therefore, I assessed that Alibaba is likely moving away from the worst of its malaise over the past two to three years. As such, it should provide more confidence for dip buyers to come on board without unduly worrying about the potential of catching (unforeseen) falling knives. Despite its attractive valuation, I assessed that the regulatory overhang is one of the main factors inhibiting investors from returning to BABA stock aggressively.
While the geopolitical headwinds between the US and China are not expected to dissipate, Alibaba's exposure is primarily in the Chinese economy. As such, it should provide much-welcomed relief to BABA holders that the opportunity to capitalize on its valuation dislocation is still apt.
BABA price chart (weekly) (TradingView)
As seen above, BABA dip buyers returned to hold the line in June (a critical development), despite the setback facing the Chinese economy. It also helped defend the pivotal lows in March, suggesting that sellers are increasingly losing the momentum to take BABA down to its lows in October 2022.
With June's constructive buying sentiments corroborating the confidence of dip buyers defending the $80 level, I assessed that we could see momentum investors returning to help BABA retake its $100 level before a move opens up toward the critical resistance zone of $125.
Based on BABA's last closing price of $91, I gleaned that the risk/reward profile is still attractive for BABA holders to return and add more positions before the market turns more constructive. By the time it becomes more positive, the risk/reward might no longer be as appealing.
Source: Seeking Alpha
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