Alibaba Stock (BABA) Moves Higher Ahead of Earnings: What To Expect

Alibaba's stock (NYSE:BABA) is moving higher this morning, up 3.48% in the pre-market, to add to yesterday's 3.19% gain. With BABA heading into earnings tomorrow before market open, bulls have been getting behind Alibaba.

Analysts expect Alibaba to report earnings of ¥15.47 ($2.15) per share for the quarter, representing a slight decline from ¥16.44 in the same quarter last year. Revenue is projected to grow modestly, with an average estimate of ¥253.76 billion ($35.35B), up 4.33% year-over-year from ¥243.24 billion. The projections suggest steady top-line growth, but a cautious outlook on profitability as the company navigates a competitive and evolving market environment.

Recent news events have introduced complexities that could impact Alibaba's near-term performance. The Chinese government's intensified scrutiny of Nvidia's H20 chip purchases by domestic tech giants, including Alibaba, casts a shadow over the company's AI ambitions.

The Ministry of Industry and Information Technology's (MIIT) requirement for companies to justify their preference for Nvidia hardware over domestic alternatives adds a layer of uncertainty. This development could potentially disrupt Alibaba's AI initiatives, particularly given the reported security concerns surrounding the use of H20 chips for government or security-related projects.

Adding to the dynamic, Alibaba's planned divestment of its 2.08% stake in India's Eternal Enterprises, the parent company of Zomato and Blinkit, via a $613 million block deal, introduces another element to consider. While this move may streamline Alibaba's international investment portfolio, the discounted sale price (4.6% below Eternal's closing price on the day of the report) may raise questions about the urgency and rationale behind the divestment.

On a more positive note, Alibaba's innovative approach to debt financing, exemplified by the $1.5 billion zero-coupon exchangeable bond offering in July, demonstrates the company's access to capital.

This bond, which allows holders to swap into shares of Alibaba Health Information Technology if the stock appreciates significantly, provides investors with potential upside while mitigating downside risk due to Alibaba's strong credit rating. The funds raised are earmarked for Alibaba's ambitious $53 billion investment in AI and cloud infrastructure, underscoring its commitment to technological leadership.

This strategic focus on AI development could be a key driver of future growth and stock performance. The stock's year-to-date increase of 44% reflects the positive sentiment surrounding this strategic shift.

In the weeks ahead of earnings, analysts have adjusted their EPS estimates, with 1 raising projections, against 9 to have lowered.