BABA trades to $79, down 9% on Thursday after revenue miss

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BABA stock loses 8%, moving below $80.
Revenue for the fiscal Q2 misses consensus by $230 million.
Management decides against spinning off the cloud business for now.
Alibaba issues a $1 annual dividend to holders of ADS shares.

Alibaba (BABA) stock has not appreciated the Chinese e-commerce leader’s fiscal second-quarter earnings results on Thursday. BABA shares dipped 9% on Thursday after Alibaba missed the quarter’s sales consensus by $230 million. Management has also decided against spinning off its cloud business due to US semiconductor restrictions. Shares are trading near $79.30 at the time of writing.

The cash-strong company still introduced a dividend for foreign investors, who have been disappointed by the failure of BABA stock to rebound from a 75% sell-off that began more than three years ago.

US stocks are beginning Thursday’s session at a loss following three straight days of optimism and even euphoria. Cisco (CSCO) and Palo Alto Networks (PANW) both traded lower in line with Alibaba as both technology stocks presented reduced guidance for the present quarter and the full year. Walmart (WMT) beat consensus on its quarter but warned of a slowdown in consumer spending beginning in the second half of October. This news rattled the stock market.

Alibaba Stock Earnings: Another earnings beat, another revenue miss

The good news was Alibaba’s top line – $2.14 per share, which was 5 cents better than Wall Street Consensus. Adjusted earnings for owners of American Depositary Shares (ADS) rose 21% from a year ago.

Revenue rose 8.5% from a year ago to $30.81 billion but missed the consensus for $31.04 billion. It has become a common phenomenon for Alibaba to beat consensus for earnings but miss consensus for sales, which have largely consolidated around the $30 billion mark over the past three years. Management said that revenue was somewhat reduced due to Alibaba focusing on higher-quality revenue streams and giving up on lower-margin, project-based revenue.

Management also introduced a $1 annual dividend for ADS shareholders, which will be paid on January 18, 2024 for shareholders of record on December 21. This gives Alibaba stock close to a 1% forward dividend yield.

The most prominent news from management’s quarterly release is that Alibaba will hold off on spinning off its cloud business following the Biden administration’s new export controls for advanced computing chips. Management felt that the cloud segment would not be able to achieve a worthwhile valuation in a spin-off due to concerns about the US’s new semiconductor policy.

Both its logistics segment, Cainiao, and its digital commerce segment are still in the process of raising external funding for a spin-off. During the fiscal second quarter, Alibaba spent $1.7 billion buying back 18.6 million ADSs.

AI stocks FAQs

First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.

There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.

Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.

Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.

Alibaba stock forecast: BABA descends just above support at $78

Alibaba stock has formed a Doji candle just below the $80 handle an hour into the Thursday session. This is not too far above the $78 support structure that held up in both May 2022 and May 2023. If it fails to hold, that could send BABA stock back to the $58 and $64 support band that held up a major sell-off in October 2022.

To regain interest from bulls, BABA needs to overtake the $82 support level and then upend resistance in the vicinity at and above $88.