Alibaba Risks Deepening $100 Billion Rout as Turf War Heats Up

“Aggressive investment in food delivery, insta-shopping will meaningfully damp its near-term earnings outlook,” HSBC analysts including Charlene Liu wrote in a note this week, cutting their price target for Alibaba by 15%.

The consensus estimate for Alibaba’s 12-month forward earnings per share is down about 6% since early May. Analysts are still overwhelmingly bullish, with 44 buy ratings on the Hong Kong shares and no holds or sells. The stock also remains historically cheap at a price-to-earnings ratio of less than 11 times.

In terms of uspide risks, UOB Kay Hian Holdings Ltd. analyst Julia Pan notes that the government may step in to curb price competition if the market takes a heavy blow and margins get squeezed further. Alibaba’s current valuation is low enough to trigger some dip buying, she added.

The stock climbed as much as 3.5% Friday amid a broad rally in Hong Kong.

But investors may remain cautious until a definitive end to the steep discounts, especially if they trigger more earnings downgrades and constrain investment in all-important AI business.

“We do need to watch for price competition that evolves into a situation where certain companies decide to gain market share at the expense of profitability,” said Nicholas Chui, a Franklin Templeton portfolio manager. “As a stock picker, we would avoid those stocks.”

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Earnings Due Friday