BABA Down 8% in a Month: Will Partnership With Apple Aid Recovery?

Alibaba Group's BABA shares have lost 8.2% over the past month, underperforming the Zacks Internet-Commerce industry and the Zacks Retail-Wholesale sector, thus reflecting investor uncertainty despite progress in the company's AI partnership with Apple. 

The Chinese e-commerce and cloud computing giant recently released versions of its Qwen3 AI models for Apple's MLX architecture, enabling compatibility with iPhones, iPads, MacBooks, and Mac computers. This development represents a significant step toward bringing Apple Intelligence features to the Chinese market, though regulatory headwinds continue to cloud the partnership's future.

1-Month Performance

Apple Partnership Advances Amid Regulatory Scrutiny

The technical integration of Alibaba's AI models with Apple devices marks meaningful progress in their collaboration to deliver AI-powered features to Chinese consumers. Apple Intelligence encompasses various AI tools, including Genmoji and Writing Tools, which require local partnership to comply with Chinese regulations. The partnership has gained strategic importance as Apple's iPhone sales captured the top position in China during May, with global sales rising 15% year over year in April and May according to Counterpoint Research data.

However, the collaboration faces mounting pressure from U.S. officials who have been scrutinizing the arrangement. Reports indicate that White House and congressional officials are examining Apple's plans to integrate Alibaba's AI technology into iPhones sold in China, reflecting broader tensions in U.S.-China technology relations. This scrutiny introduces uncertainty about the partnership's timeline and ultimate implementation, potentially affecting both companies' strategic plans in the crucial Chinese market.

Mixed Quarterly Performance Reflects Broader Challenges

Alibaba's fourth-quarter fiscal 2025 results presented a mixed picture that disappointed investors. Total revenues reached RMB 236.5 billion, representing 7% year-over-year growth, though this figure missed the Zacks Consensus Estimate by 1.49%. The company's adjusted EBITA showed stronger performance with 36% year-over-year growth to RMB 32.6 billion, indicating operational efficiency improvements.

The Taobao and Tmall Group demonstrated resilience with customer management revenues growing 12% year over year, primarily driven by improved take rates. Meanwhile, the Cloud Intelligence Group accelerated growth to 18% year over year, with AI-related product revenues maintaining triple-digit growth for the seventh consecutive quarter. This cloud performance underscores the potential value of the Apple partnership, though regulatory uncertainties may limit near-term benefits.

However, various business segments showed mixed results, with some areas like Cainiao Smart Logistics experiencing revenue declines due to operational restructuring.

The Zacks Consensus Estimate for fiscal 2026 earnings indicates a downward revision of 1.5% over the past 60 days to $10.62 per share, the market appears to be pessimistic about Alibaba's growth trajectory.

Alibaba Group Holding Limited Price and Consensus

Alibaba Group Holding Limited price-consensus-chart | Alibaba Group Holding Limited Quote

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Regulatory Risks Create Strategic Uncertainty

The regulatory environment presents the most significant risk to Alibaba's growth trajectory, particularly regarding the Apple partnership. U.S. resistance toward the Apple-Alibaba AI arrangement could limit cloud revenue upside potential. This uncertainty may prompt Alibaba to delay research investments and capital spending on related infrastructure until clearer regulatory guidance emerges.

The company's expansion beyond China continues through partnerships like the recent GoTo Group collaboration in Indonesia, where Alibaba Cloud successfully migrated GoTo Financial's infrastructure. Such international ventures provide diversification opportunities, though they cannot fully offset challenges in core markets.

Valuation and Competitive Landscape

Despite recent declines, Alibaba's valuation metrics suggest the stock trades at a significant discount compared to global technology peers. The stock's forward 12-month Price/Earnings ratio of 10.61X, as compared to the Zacks Internet-Commerce industry average of 24.05X, remains compressed due to ongoing regulatory concerns and slower growth expectations. This valuation gap reflects market skepticism about Chinese technology stocks generally, though it also presents potential upside for patient investors.

BABA’s P/E F12M Ratio Depicts Discounted Valuation

Competition in China's e-commerce and cloud markets continues intensifying. Domestic rivals like JD.com JD and Pinduoduo maintain pressure on e-commerce operations, while international cloud providers like Microsoft MSFT and Amazon AMZN compete for enterprise customers. However, Alibaba's market leadership position and AI capabilities provide defensive advantages, particularly in cloud computing, where technical expertise creates meaningful barriers to entry.

The company's financial position remains robust with RMB 366.4 billion in net cash, providing flexibility for strategic investments and shareholder returns. During fiscal 2025, Alibaba repurchased $11.9 billion in shares and announced $4.6 billion in dividends, demonstrating a commitment to shareholder value creation.

Investment Outlook: Patience Required

Given current uncertainties surrounding the Apple partnership and broader regulatory environment, investors should consider maintaining existing positions while avoiding significant new investments until greater clarity emerges. The technical progress with Apple integration suggests long-term potential, but regulatory risks could delay meaningful benefits into fiscal 2026.

The stock's compressed valuation provides downside protection for current holders, while the company's strong cash position and improving operational metrics support a patient approach. Investors seeking new positions might benefit from waiting for the resolution of regulatory uncertainties or more attractive entry points that could emerge if partnership delays materialize. BABA stock currently carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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