Alibaba Group (BABA) Plummets 2.63% Amid Profitability Woes and AI Strategy Concerns

Summary
• Alibaba Group (BABA) trades at $148.24, down 2.63% from its previous close of $152.24
• Intraday range spans $147.21 to $148.73, reflecting volatile trading
• Analysts highlight 23.55% year-over-year EPS decline and execution risks in AI/cloud strategy

Alibaba Group faces a sharp intraday decline as deteriorating profitability and strategic execution concerns weigh on investor sentiment. The stock’s 2.63% drop underscores growing skepticism about its AI and cloud ambitions, despite recent institutional buying. With the 52-week high at $192.67 and a dynamic P/E of 19.64, the stock’s near-term trajectory hinges on capital allocation discipline and market confidence in its long-term AI roadmap.

Profitability Deterioration and AI Strategy Execution Risks Spark Sell-Off
Alibaba’s 2.63% intraday decline stems from deteriorating profitability and execution risks in its AI and cloud strategy. Analysts warn of a 23.55% year-over-year EPS decline, driven by heavy capital expenditures in AI infrastructure and losses in its instant commerce business. The stock’s 75% annual gain contrasts with recent volatility, as investors question whether Alibaba can balance short-term costs with long-term growth. The 52-week high of $192.67 remains distant, with the current price near the 200-day moving average of $137.46, suggesting a critical support level.

IT Services Sector Mixed as Alibaba Trails Peers
The IT Services sector shows mixed momentum, with Microsoft (MSFT) down 0.15% and Oracle (ORCL) underperforming. Alibaba’s 2.63% drop outpaces broader sector weakness, reflecting specific concerns about its AI/cloud monetization. While Baidu (BIDU) has outperformed Alibaba by 11.3% over six months, Alibaba’s 2.29x forward P/S ratio suggests overvaluation compared to Baidu’s 2.17x. The sector’s focus on enterprise AI adoption highlights Alibaba’s struggle to convert scale into profitability.

Options and ETFs for Navigating Alibaba’s Volatility
• KraneShares 2x Long BABA Daily ETF (KBAB): -5.51%
• GraniteShares 2x Long BABA Daily ETF (BABX): -5.35%
• 200-day MA: $137.46 (below current price)
• RSI: 37.56 (oversold)
• MACD: -2.8979 (bearish)
• Bollinger Bands: $144.798–$164.211 (current price near lower band)

Alibaba’s technicals suggest a short-term oversold condition, with RSI at 37.56 and MACD below zero. The 200-day MA at $137.46 acts as a critical support level. Aggressive bulls may consider BABA20260102C146 (strike $146, expiration 2026-01-02) with a 48.63% leverage ratio and 23.23% IV, or BABA20260102C147 (strike $147, 58.16% leverage ratio, 25.89% IV). Both options offer high liquidity (turnover 332,582 and 463,576) and strong theta/gamma (theta -0.675, gamma 0.0843). A 5% downside to $140.83 would yield a 14.6% payoff for the $146 call and 13.9% for the $147 call. Position sizing should prioritize liquidity and volatility management.

Backtest Alibaba Group Stock Performance
After experiencing a -3% intraday plunge from 2022 to the present, Alibaba's (BABA) stock exhibited mixed short-term performance. The backtest results show that over a 3-day period, the win rate was 45.23%, with an average return of 0.19%. Over a 10-day period, the win rate increased to 45.61%, with an average return of 0.51%. However, over a 30-day period, the win rate rose to 48.85%, with an average return of 2.11%. The maximum return during the backtest was 4.96%, which occurred on day 59 after the plunge. These results suggest that while BABA's stock showed some volatility following the intraday plunge, it generally exhibited a positive trend in the short term, with the longest-term returns being the most robust.

Alibaba at Crossroads: Watch $137.46 Support and AI Strategy Clarity
Alibaba’s near-term outlook hinges on its ability to stabilize profitability and demonstrate execution progress in AI/cloud. The 200-day MA at $137.46 is a critical support level; a break below could trigger further selling. Conversely, a rebound above $154.50 (30-day MA) may attract buyers. Investors should monitor the KraneShares 2x Long BABA Daily ETF (KBAB), which fell 5.51%, and sector leader Microsoft (MSFT), down 0.15%. For options traders, the BABA20260102C146 and BABA20260102C147 contracts offer high leverage and liquidity for directional bets. Position sizing and stop-loss placement near $137.46 are essential to manage risk in this volatile environment.