Alibaba stock bullish flag points to a rebound after earnings

Alibaba stock price suffered a harsh reversal this month, moving from the year-to-date high of $193 to the current $148. It has slumped by 23%, a drop that has erased billions of dollars in value. It is also hovering near its lowest level since September last year as investors wait for the upcoming earnings report.

Alibaba Group to publish its earnings 

Alibaba share price has slumped in the past few weeks, mirroring the performance of other Chinese technology companies as evidenced by the ongoing Hang Seng Tech Index slump.

The sell-off accelerated after Donald Trump's administration added the company into an entity list for enabling business with the Chinese military. That action alone means that the company will likely not have direct access to Nvidia's H200 chips, which may limit its AI ambitions.

Looking ahead, the next major catalyst for the Alibaba stock price will be the upcoming earnings, which will be released on Tuesday next week. These results will provide more information about its core e-commerce business and its cloud business.

The most recent results showed that its revenue rose by 15% in the third quarter, driven by its cloud business, which grew by 34%. Alibaba’s China e-commerce business grew by 16%, while the international digital commerce business rose by 10%. These numbers mean that the company's growth has resumed even as the Chinese economy has slowed.

Alibaba’s revenue jumped to over RMB 247 billion, while its net income fell to RMB 20.6 billion. The drop was because of its aggressive spending on artificial intelligence, its huge investments in quick commerce, and other R&D spending.

Still, on the positive side, the company continued to use its free cash flow to repurchase its shares. It repurchased 17 million shares for over $253 million. This means that it has more room to grow its repurchases as its authorization is for over $19.1 billion shares.

Alibaba, like Amazon, is investing billions of dollars in the AI industry, with its models continuing to gain market share in the country. It recently launched a service to help developers build and launch new software. Still, investors are waiting for more information about how it is monetizing these products.

There are signs that Alibaba has become an undervalued company trading with a forward PE ratio of 24, much lower than other comparable companies like Amazon and eBay. This explains why analysts have a moderate buy rating on the stock, with Nomura upgrading its target from $193 to $237 and Jefferies having a target of $225.

Alibaba stock price technical analysis 

The daily timeframe chart shows that BABA stock price has rebounded in the past few years. It soared from a low of $63 in 2024 to a high of $193 in October last year.

A closer look shows that the stock has remained above the 100-day Exponential Moving Average (EMA), a sign that bulls are in control. It has formed a bullish flag pattern and is now in the lower side of the descending channel.

Therefore, the most likely scenario is where the stock rebounds in the coming weeks, potentially to the upper side of the descending channel at $175.

On the other hand, a move below the lower side of the channel will invalidate the bullish outlook and point to more downside, with the next key target being at $128, the 50% Fibonacci Retracement level.