Alibaba: trading idea closing
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Alibaba: a short-term burden can become a driving force later on
Alibaba reported quarterly results in March that fell short of expectations; fierce competition in e-commerce continues to weigh on profitability, despite strong performance in the cloud business. Looking ahead, however, the situation may be on a path to gradual improvement, while new launches continue to roll out in AI services, which could represent significant business potential for the coming years. The market still does not price this in at current price levels, so even if heavy capex spending have a negative impact on performance in the short term, the company may be able to outgrow this over time. Moreover, due to the decline in share prices over the past few months, valuation levels are now more favorable, so we are maintaining the stock on our Equity Top Pick List.
Alibaba's share price failed to maintain its breakout from weeks ago, reaching the stop level of our trading idea yesterday after the reversal. We therefore consider the position closed, which we attribute primarily to the underperformance of the technology sector rather than any change in the company's specific fundamentals. Therefore, although we are exiting our trading position, we are maintaining the stock on our equity top pick list due to its favorable long-term fundamentals.
The development of AI solutions (such as Anthropic's developments in recent times) has put software stocks under serious selling pressure, as in many cases artificial intelligence may call into question the business model of these companies, which could present them with structural challenges. The wave of selling had a negative impact on the entire technology sector, and in recent days, investors have responded to the quarterly flash reports of several large technology companies by reducing their positions, triggered either by higher-than-expected capex plans or growth figures that fell just short of expectations. The underlying reason may be that expectations were simply too high, while positioning became stretched, leading to corrections.
Relative price movements of Alibaba and its peers
We basically attribute the downward trend in the shares of Alibaba and several other Chinese competitors in recent days to this unfavorable industry environment, which ultimately caused our long trading position to reach its previously set stop-loss level. It is worth cutting losses here and stepping back until the general sector-wide selling pressure subsides.
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