Why Alibaba Stock Is Rallying Today
Key Points
A growing number of analysts are raising their expectations of August’s fiscal Q1 results.
Today’s jump also allows investors to look at recent headlines in a new, more bullish light.
The sizeable gains logged by this stock and several of its peers suggest a sweeping, prolonged reversal of recent bearish sentiment could have just begun.
Most of China's top technology stocks are participating in Wednesday's broad turnaround. Leading the charge, however, is Alibaba Group (NYSE: BABA). As of 12:22 p.m. ET shares of the e-commerce giant are up 11.2%... its best day in nearly a year.
Thank UBS, mostly, although several different developments are contributing to the bullish effort.
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Analysts provide the catalyst
Down by nearly half since its October peak, BABA shares started today's trading session already ripe for a rebound. UBS's Kenneth Fong triggered it, though, noting on Wednesday that the company likely produced marginwidening revenue growth during the quarter ending in June, led by 45% top-line growth from its cloud computing unit. Most analysts expect to see accelerating revenue growth in August's release of the company's fiscal Q1 results, in fact, largely driven by growth of its artificial intelligence business. Jefferies' analysts also added this morning "macro headwinds and softness in consumer sentiment are in the price."
Analysts' fresh optimism regarding Alibaba isn't the only bullish factor at work on Wednesday, however. Although it's not company-specific, similar gains from shares of other Chinese tech names like Baidu (NASDAQ: BIDU) and JD.com (NASDAQ: JD) point to a broad turnaround effort for most of the region's beaten-down technology stocks.
This tailwind also allows investors to look at recent news about Alibaba through a more bullish lens. This includes Monday's decision from a U.S. federal judge to block -- albeit only temporarily -- the Pentagon from designating Alibaba as a Chinese military company under its Section 1260H rules, which would prevent it from lobbying within the United States.
A hint worth taking for risk-tolerant investors
A big day like today is a tough act to follow. As such, don't be surprised if BABA shares show some weakness as soon as Thursday.
Just don't lose perspective on the way this stock and its peers ebb and flow. Most artificial intelligence stocks tend to move as a herd as the sentiment surrounding the AI revolution evolves. Rather than lasting a mere single day, these moves can last weeks, if not months. They often simply start with that one decisive reversal of an aging trend... like today's bounce from a pullback that began months ago.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Baidu and Jefferies Financial Group. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.