Alibaba (NYSE: BABA) shares slid 4% on Friday, February 13, following news that the U.S. government is preparing to expand a Pentagon list of companies allegedly supporting the Chinese military.
The placement on the Pentagon’s list does not automatically trigger sanctions, rather, it serves as a warning to U.S. partners about potential national security concerns, Reuters first reported citing two familiar with the matter.
Nonetheless, the development can strain commercial partnerships, lead to further compliance risks, and generate overall uncertainty among investors. The slide in Alibaba stock prices, which now sits at $158.29.
The 1260H roster already includes major Chinese corporations such as Tencent Holdings, one of the country’s largest technology groups, and CATL, a leading electric vehicle battery manufacturer.
When added, both companies said it would not affect their operations and pledged to seek reconsideration. CATL, in particular, denied any military-related activities.
Of course, any updates to the list also risk straining the relations between Washington and Beijing and thus putting a question mark on the trade truce reached last quarter.
Alibaba stock down ahead of earnings
Considering that Alibaba is preparing to post its quarterly earnings on Thursday, February 19, the timing of the Pentagon reports appears much more unfortunate.
After all, the report could prove pivotal for investors tracking the company’s transformation and shed more light on how the company is managing a shifting operating landscape.
Alibaba is forecast to deliver higher revenue, but lower pre-tax profit and earnings per share (EPS) compared to the same period last year.
As the stock has rallied nearly 50% over the past year, mixed signals such as these cast doubt on whether investor optimism around AI-driven commerce and cloud monetisation is translating into durable top-line growth.
Wall Street nonetheless remains positive. Over the past week and a half, Citigroup and Weiss both gave BABA stock a ‘Buy’ rating. While Jefferies and Morgan Stanley have lowered their price targets over the same period, the stock still enjoys 18 ‘Buy’ ratings against one ‘Hold’ and one ‘Sell’ recommendation, with an average price target of $203, a 30% upside according to TipRanks.
Featured image via Shutterstock
Source: https://finbold.com/alibaba-stock-nosedives-as-pentagon-scrutinizes-its-ties-to-the-chinese-military/
