Alibaba stock price dropped sharply in Hong Kong, reaching its lowest level since July 30th, as traders reacted to its earnings report and its plan to dilute shareholders. It plunged to H$111, down substantially from this month’s high of H$130.1. It has slumped by over 40% from its highest level last year.
Alibaba stock dropped as AI costs surge
BABA stock dropped even after the e-commerce and cloud company, published strong financial results. These numbers demonstrated that its business was seeing strong demand across most of its business.
Alibaba’s revenue rose by 9% in the second quarter to over 268 billion RMB. Its e-commerce revenue rose by 4%, while its AI cloud and compute services rose by 45%. Most notably, its AI labs and applications revenue rose by 16% during the quarter.
However, the main challenge is that the company’s revenue came at a cost. Its income from operations dropped by 57% to over 15.1 billion RMB, while its net income tumbled by 75% to 10.4 billion RMB. These costs may continue rising as the company invests huge sums of money on its AI business. Its capital expenditure soared to over 67 billion RMB during the quarter.
Alibaba stock dropped after the management announced that it raised $10 billion by selling new shares in Hong Kong. It sold 710 million shares at HK 112.7 each, a discount from where it closed on Friday.
In addition to this, the company announced that it sold Lingxi Games, its gaming studio as it seeks to pump more money to its AI business. It sold the business to Trustar Capital Group.
AI business is starting to pay off
On the positive side, there are signs that Alibaba’s AI investments are starting to pay off. For example, a recent report showed that its models had achieved about 3 billion downloads, more than other companies like Meta Platforms and Google.
Alibaba has also inked a major partnership with Apple, which is now using its models in China. And its recent models have become so successful that they are at par with Fable, Anthropic’s new model.
The challenge, however, is that competition is at an elevated level in China. This competition is coming from companies like Moonshot, DeepSeek, and MiniMax. As a result, as we have seen in the electric vehicle industry, this competition may lead to price wars, which will affect its margins.
Alibaba share price technical analysis
BABA stock chart | Source: TradingView
The daily chart shows that Alibaba shares have plunged in the past few days. It dropped to 111 HKD in Hong Kong, its lowest level since July 30. This retreat happened after it formed a double-top pattern, a common bearish reversal sign in technical analysis.
The stock has slumped below the 50-day moving average, while the Relative Strength Index (RSI) has moved below the neutral level of 50. Therefore, the stock will likely continue falling, potentially to the psychological level of 100 HKD. The bearish outlook will be invalidated if it moves above the key resistance at 130 HKD.
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