Alibaba Shares Plunge on US Defense Department Report

Alibaba Group delivered what should have been a market-pleasing performance, showcasing surging cloud revenue and new potential in artificial intelligence. However, investor optimism was abruptly cut short by a disturbing development from Washington, D.C., which erased the positive momentum from the strong quarterly figures. The question now facing the Chinese e-commerce titan is whether this signals a political endgame on the American stage or is merely a temporary scare.

The sudden shift in market sentiment was triggered not by corporate performance but by geopolitics. According to reports, the US Department of Defense is considering adding Alibaba to its significant "1260H" list. A communication from the Pentagon to Congress identified the corporation, along with Baidu and BYD, as companies allegedly supporting the Chinese military.

While inclusion on this list does not result in immediate, automatic sanctions, it is viewed on Wall Street as a substantial warning signal. For US investors, the associated risk escalates dramatically, as such moves frequently precede stricter trade restrictions. This fresh wave of political uncertainty swiftly ended hopes for a more relaxed phase in the US-China trade conflict.

Should investors sell immediately? Or is it worth buying Alibaba?

Investor Reaction Overwhelms Strong Cloud Growth

The market's response was severe. Investors are currently assigning far greater weight to the reignited political risk than to the operational successes in the cloud division. An initial share price gain was immediately sold into, with the stock closing yesterday's session at 135.80 euros, thereby extending its recent corrective trend.

The company now faces a challenge in restoring market confidence. While analysts maintain a positive outlook on the momentum of the cloud business, institutional investors are likely to remain cautious as long as the threat from Washington persists. The coming weeks will reveal whether Alibaba is formally added to the list and if its strategic push into artificial intelligence can ultimately counterbalance these political headwinds.

Strategic Pivot Comes at a Cost

The geopolitical news completely overshadowed a significant operational milestone. Alibaba is deep into a corporate transformation, shifting its focus from pure, unchecked growth toward an AI-driven efficiency model. The financial results for the second fiscal quarter highlight this balancing act:

• AI-Fueled Cloud Expansion: The cloud computing segment reported impressive year-over-year growth of 34 percent, driven by substantial demand for AI infrastructure and the company's proprietary "Qwen" models.
• Substantial Profit Decline: Conversely, net profit plummeted by 53 percent. This sharp contraction is the direct cost of the company's aggressive strategy, which involves channeling billions into AI development and heavily subsidizing its core e-commerce operations to compete on price against rivals like JD.com.