(Bloomberg) — Alibaba Group Holding Ltd. faces a key test in its earnings presentation Thursday after a DeepSeek-sparked rally added more than $110 billion to its market value.
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Hong Kong-listed shares of Alibaba surged nearly 60% from a January low through Wednesday on excitement over its artificial intelligence model, co-founder Jack Ma’s meeting with top officials and a tie-up with Apple Inc. That’s come even as the company faces concerns over the impact of fierce competition and China’s struggling economy.
Options traders are predicting a bigger-than-usual stock reaction to the results. Shares have shot past analyst price targets, trading at technically overheated levels and at the highest earnings multiple in two years.
“Fundamentals will have to be back in focus” to drive further gains in the stock, HSBC Holdings PLC analyst Charlene Liu wrote in a note. This includes e-commerce market share stabilization as well as “a clear strategy to monetize AI and accelerate cloud revenue growth and margin improvement.”
Alibaba shares fell as much as 4% in early trading Thursday, ahead of its earnings report.
The DeepSeek frenzy has raised expectations that accelerating AI adoption will boost demand for Alibaba Cloud’s market-leading services. The stock is trading at about 13 times estimated forward earnings, up from less than 9 times just last month.
Alibaba’s valuation could return to its five-year average of 15 times “if its AI story continues to unfold,” said Xiadong Bao, fund manager at Edmond de Rothschild Asset Management. The rally faces challenges, however, including the level of stimulus announced at upcoming government meetings and the start of US tariffs, he said.
The bar to impress the market this earnings season looks high, judging from the negative reaction to Baidu Inc.’s results this week. The shares slid as investors focused on weakness in its core search business despite strong momentum in its AI cloud business.
Alibaba’s results will be parsed for clues on its success in capitalizing on AI demand, while sheltering its earnings from the impact of price competition with rival hyperscalers and e-commerce players.
Analysts estimate sales rose 6.5% in the three months through December, up more than a full percentage point versus both the previous quarter and year-ago period. The consensus expects a net adjusted profit margin of 16.6%, up from 13.2% for the September-ended quarter.
