Cloud and AI in Focus for Alibaba Earnings

The Chinese retail giant is expected to report a decline in earnings amid a resurgence of trade tensions, as the Trump Administration threatens tariffs of up to 200% on China.

The Latest Developments

• Trump threatens massive tariffs on China if it doesn't export rare earth magnets, amid trade negotiations aimed at lowering tensions between the countries.
• Alibaba is expected to report lower earnings despite a modest increase in sales, as it faces increased competition and spending on AI.
• Markets are likely to focus on Alibaba's commentary on the AI and cloud market, which is where the company is seeing solid revenue growth.

US-Sino Trade Tensions Flare Up

On Monday, amid a press event following South Korea's president's visit to the White House, US President Donald  if it doesn't export rare-earth magnets. The threat arises amid trade negotiations between the world's two largest national economies, which were sparked by Trump's "reciprocal" tariffs in April. Beijing, which controls 90% of the world's rare-earth magnet production, has curbed exports to leverage a trade deal. However, trade data shows that US imports of the magnets have returned to pre-April levels. Analysts suggest that it might be a sign that a deal is at hand, as Trump uses the threat of tariffs in the final stretch of the negotiations. The US and China have agreed on a trade truce until November while working on a more permanent deal.

Alibaba Focus on Cloud Amid Slowing Sales

With Alibaba's stock price down 20% from its high back in March, investors will be looking for signs that the online retailer has hit bottom, aided by revenue from its cloud division and its push into AI. Ahead of its earnings, the company , the latest in the company's $53 billion push to become the leading AI and cloud provider in China. Its Cloud Intelligence Unit saw 18% growth in the last quarter, which contrasts with slowing sales from its retail arm amid soft consumer demand in China. Around 67% of Alibaba's retail business is within China.

The consensus among analysts is that  from CNY16.44 a year ago when it releases earnings before the US market opens on Friday. Sales are expected to grow 4.4% to CNY 253.8 billion, with the divergence between the top and bottom lines showing increased margin pressure. Traders will likely be seeking insight into how the trade war is impacting the company and what the company foresees for the future of AI development. Just last week, Alibaba received approval in Hong Kong to , which is expected to provide a cash infusion to further invest in the cloud.

Alibaba Share Price Gaining Momentum?

Although Alibaba is up over 40% since the start of the year, it is also down 20% since its March highs and is still within a potential triangle formation. Leading up to the earnings report, its share price has been trending higher, with the RSI staying well below overbought, which might imply further upward momentum. Near-term resistance sits at the recent bounce off the 'autotrend' at 128.00 per share, with further resistance at the 135.00 level that was the May high. Support can be found at the lower Bollinger Band, which coincides with the August swing low at 116.00. A break below this level could potentially lead to the quarter's low at 104.00.

Source: SpreadEx | BABA