Source: Leverage Shares analysis

In the previous article around Alibaba’s Q1 earnings, traded volumes in its Hong Kong-listed shares had averaged at 3.5 times that of its U.S.-listed American Depositary Shares (one of which equals eight shares) over the past year. Now, this ratio has increased to 4.1 times. At a period when China’s retail investors have loosened their overall conviction across the board almost in tandem with global investors, this heightened ratio indicates that the company’s Hong Kong ticker has been a net beneficiary as a „safe harbour“ with a greater survivability bias in the midst of China’s fitful economy.

Meanwhile, the U.S. ticker has maintained healthy volumes, with occasional dips in activity even resulting in increased volumes in Hong Kong. In terms of price performance, the U.S. ticker’s valuation shows a startling 10% underperformance over the past year, with the bulk of this attributable to the immediate period after the „9M“ earnings release.

Despite its AI and cloud businesses delivering such massive earnings in the year so far, it’s unlikely that this will remain as free cash for all of Alibaba’s endeavours. The company has committed to spending $53 billion² in its AI infrastructure and data centers over the next three years – thus effectively cycling back these earnings back into this segment. However, to build this infrastructure, it will likely need U.S. tech, which it might have hurdles accessing.

On the 21st of February, the White House unveiled the „America First Investment Policy“³ wherein it highlighted the need to contain the risk of certain adversaries that „systematically direct and facilitate investment in United States companies and assets to obtain cutting-edge technologies, intellectual property, and leverage in strategic industries.“ Effectively, this means that the sale of technology to the likes of Alibaba will be heavily scrutinized.

Another pressure point on the company is the directive made to government officials to „determine if adequate financial auditing standards are upheld for companies covered by the Holding Foreign Companies Accountable Act“. Alibaba, along with over 100 other companies⁴, was listed by the U.S. Securities and Exchange Commission (SEC) in 2022 as being „non-compliant“, leading to Alibaba’s primary listing in Hong Kong. The new policy demands a time-bound mitigation protocol over „perpetual and expensive compliance obligations“. It is quite unlikely that Alibaba would be able to comply, since the Chinese government bars examination of its companies‘ books by foreign regulators on national security grounds.

The facts, as they lie, indicate that Alibaba is much more than an „AI company“ as per its segment trends. Also, as the variance in ticker performance indicates, there is substantial conviction resting in the company among investors not in the United States. In the AI space, the company unveiled the QwQ-Max⁵, an AI reasoning model that it contends rivals both OpenAI’s o1 and DeepSeek’s R1. Whether it can monetize this claim with the acquisition of infrastructure required to deliver viable commercial solutions is a question worth more than $53 billion.

All in all, the drop in U.S. ticker performance is well-reasoned but the company still holds enormous potential in its other endeavours as well. The U.S. ticker becomes an interesting for investors, when accounting for the fact that the complex issues it faces creates several crests and troughs in the ticker’s trajectory. Professional investors in Europe with a more tactical bent might find two ETPs particularly interesting for tactical trading strategies: the “3x Alibaba ETP” provides magnified exposure to the upside of the U.S. ticker’s performance while the “-3x Short Alibaba ETP” does the same on the downside. Both products have seen a massive amount of buy-ins in recent times. However, like with many products favoured by retail investors, the upside sees a lot more in turnover than the downside.

Footnotes:

1. „Alibaba Earnings: IPO Pathway Creates Stock Surge“, Leverage Shares, 20 August 2024
2. „Cloud Giant Alibaba Invests $53B In AI Infrastructure As Stock Surges“, CRN, 24 February 2025
3. „America First Investment Policy“, U.S. White House, 21 February 2025
4. „Trump’s ‘America First Investment Policy’ could threaten hundreds of Chinese companies listed in the U.S.“, Fortune, 25 February 2025
5. „Alibaba previews new AI reasoning model to challenge DeepSeek R1, OpenAI o1“, South China Morning Post, 25 February 2025