Alibaba Group (BABA) stock slipped over 5% in premarket trading Monday, cooling off after an explosive 70% rally in the first two months of the year. The decline follows the Chinese tech giant’s announcement of a massive $52 billion investment into cloud and AI infrastructure over the next three years.

The move signals Alibaba’s aggressive push to dominate China’s AI race, but investors appear cautious amid escalating capital expenditures in the sector.

Alibaba’s AI Ambitions vs. DeepSeek’s Disruption

The investment—larger than Alibaba’s entire cloud and AI spending over the past decade—underscores its commitment to AI-driven growth. However, the landscape is shifting rapidly. Chinese startup DeepSeek recently unveiled an AI model that requires significantly less power and computing resources to train, raising questions about efficiency in the sector.

Alibaba, however, remains bullish. In its latest earnings call, CEO Eddie Wu reaffirmed the company’s commitment to AI, stating that AI-related product revenue in its cloud division has grown by triple digits for six consecutive quarters.

Just last month, Alibaba released an AI model it claims outperforms DeepSeek and matches global top-tier models. Meanwhile, the company is also benefitting from its AI partnership with Apple (AAPL), which aims to integrate Alibaba’s AI tech into iPhones in China.

Stock Performance: A Necessary Pullback?

Despite Monday’s decline, Alibaba shares remain one of the biggest winners of 2024. Last week, the stock surged to its highest level since November 2021, fueled by stronger-than-expected fiscal Q3 earnings.

Key highlights from the report:

  • Revenue growth: Alibaba’s Cloud Intelligence Group revenue surged 13% YoY, surpassing estimates of 9.8% growth.
  • Market dominance: Alibaba remains locked in an AI arms race with Baidu (BIDU) and Tencent (TCEHY) as China’s leading cloud provider.

Technical Ratings & Investor Sentiment

Even with today’s dip, Alibaba’s technical indicators remain robust:
✅ IBD Composite Rating: 97/99, ranking among the best-performing stocks.
✅ IBD Relative Strength Rating: 97/99, outperforming 95% of all stocks over the past year.

While investors are taking a cautious stance on Alibaba’s heavy AI spending, the broader trend suggests that BABA remains a high-growth contender in the AI and cloud space.

Alibaba is making an aggressive AI bet, but the market is watching how it manages rising costs. While the stock is extended past buy zones, long-term investors remain focused on whether its AI and cloud dominance will continue to drive growth. Short-term pullback or long-term opportunity? That’s the key question for traders.

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