BABA Stock Slips Overnight: Alibaba's AI Spending Draws Investor Scrutiny, Analysts Split

• Bernstein lowered its Alibaba price target to $165 from $180 but kept an Outperform rating.
• Bernstein believes Alibaba can still generate good returns from its spending despite investor concerns over the share sale. 
• Bank of America raised Alibaba's price target to $175 from $172, implying a 54% upside. 

Alibaba Group (BABA) stock slipped overnight as investors weighed concerns over the company's recent $10.2 billion equity raise and whether its aggressive AI spending can deliver attractive returns. Wall Street offered mixed signals, with Bernstein lowering its price target while Bank of America raised its price target on stronger cloud growth expectations. 

Alibaba stock traded over 1% lower overnight, ahead of Tuesday. The stock fell more than 4% last week, marking a fourth straight week of losses. 

Bernstein Cuts Alibaba Price Target 

On Monday, Bernstein cut its price target for Alibaba to $165 from $180 while maintaining an 'Outperform' rating, still implying a 45% upside to the stock's last closing price. The firm acknowledged investor frustration over the capital raise, particularly because Alibaba held $30.7 billion in net cash when it announced the deal.

Bernstein said the transaction weakened confidence in management's previous arguments about returns on investment. However, the firm's own review largely backs Alibaba's expectations for recovering the money it spends on capital projects, suggesting the company's spending strategy could still generate reasonable paybacks.

Alibaba's Cloud Expansion Could Boost Future Earnings 

Bank of America took a more optimistic view. Analyst Joyce Ju lifted her price target to $175 from $172 and kept a 'Buy' rating, implying a 54% upside to the stock's last closing price. She said investors are increasingly focused on whether Alibaba can turn its AI spending into stronger and more profitable cloud operations.

Ju raised BofA's outlook for Alibaba's cloud revenue growth in fiscal 2027 through fiscal 2029 to 51%, 56% and 41%, respectively. The forecasts assume newly added computing capacity will support revenue from outside customers and contribute to earnings beginning in fiscal 2028.

Alibaba Leaders Show Confidence With Stock Buying 

Late last month, Alibaba sold 710 million shares at HK$112.70 ($15.65) each, drawing strong interest from institutional investors, with demand reaching nearly three times the number of shares available. Alibaba plans to use the money to expand its AI business, including building and improving the infrastructure needed to support its AI technology.

Following the share sale, Alibaba founder Jack Ma bought more than HK$600 million worth of Alibaba shares in Hong Kong. A similar move was made by Chairman Joe Tsai and CEO Eddie Wu, who together bought about HK$202 million of Alibaba shares. 

BABA Stock: Retail Stance

On Stocktwits, retail sentiment around the stock remained in 'bearish' territory. 

BABA stock has declined over 22% year-to-date. 

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