Alibaba's Waning Earnings and New AI Regulations Form a Daunting Double Act

Alibaba faces fresh regulatory crackdown on AI services while earnings plummet nearly 100%, stock down 47% from peak. Bull case hinges on AI monetization.

Just as Alibaba was navigating a brutal earnings slump caused by its aggressive artificial intelligence spending, a fresh regulatory crackdown in Beijing threatens to complicate the company’s recovery. The e-commerce giant is being forced to dismantle parts of its consumer-facing AI platform while simultaneously barring employees from using a popular US-developed coding tool, raising doubts about how quickly it can monetize its huge investments.

The latest regulatory blow centers on the "Intelligent Agent" functions within Alibaba’s Tongyi Qianwen (Qwen) suite, which will be shut down by July 10. The move aligns with new state rules taking effect on July 15 that tighten oversight of human-like AI services. At the same time, Alibaba is banning its staff from using Anthropic’s Claude Code, a programming assistant, effective the same date. Instead, developers must switch to the company’s own tool, Qoder, as part of a broader push for technological self-reliance and data security.

These developments come at a time when Alibaba’s balance sheet is already under severe strain. In its fourth fiscal quarter, adjusted net income collapsed to just $12 million, a year-on-year drop of nearly 100%. Earnings per share tumbled 95%. The culprit is a massive expansion in AI infrastructure: Alibaba’s data center requirements have grown tenfold since 2022, and the company is set to blow past its original capital expenditure budget of 380 billion renminbi.

The stock has responded accordingly, closing last Friday at €85.80 — roughly 47% below its October 2025 peak. That comes despite a modest 2% bounce on the week, with the shares still down about 35% year to date. A year low of €79.50, set in late June, marks the current chart floor.

Proponents of a turnaround argue that the selloff has gone too far. The 14-day relative strength index sits at 29.9, deep in oversold territory, and the stock trades only 8% above its nadir. On the fundamental side, Alibaba’s quick-commerce revenue surged 57% to 20 billion renminbi, with order volumes multiplying 2.7-fold. The cloud division retains its market leadership in China, and analysts’ average price target of around €167 implies a near doubling from current levels. The bull case rests on the idea that the market is completely discounting future AI-related revenue.

Yet the bearish arguments are equally compelling. Alibaba’s free cash flow is suffering from the capital rotation, and profitability in its core Chinese e-commerce business is weakening: adjusted operating profit fell 40% to 24 billion renminbi. If margin pressure persists, the profit collapse could prove more than a one-off. Technically, the stock is more than 18% below its 50-day moving average and nearly 32% below its long-term trend line. A sustainable recovery would require reclaiming the 50-day line at €104.91, but the more critical test will come from operating results.

Adding to the uncertainty, insider activity paints a mixed picture. Alibaba president Michael Evans recently sold 720,000 shares. Institutional moves are split: Fideuram Intesa Sanpaolo increased its stake, while Strs Ohio and others trimmed positions.

Investors are now waiting for first fiscal quarter 2027 results, expected in the coming weeks. The key question is whether AI-related revenues can finally start offsetting the enormous spending. The company has described this period as a decisive inflection point, but until the numbers show concrete evidence of monetization, the stock will remain hostage to a delicate balance between ambitious expansion and regulatory headwinds.