Stock price skyrocketed by 60%! Can the surging Alibaba deliver a satisfactory report in the Q3 financial results?

According to the Zhitong Finance APP, as the latest quarterly financial report is about to be released, Alibaba (BABA.US) will face a significant test of its rapid rise in the DeepSeek craze.

Since the low point in January, Alibaba's stock price in Hong Kong has soared nearly 60%, driven by market expectations for its AI models and positive news such as founder Jack Ma's participation in private enterprise symposiums and collaborations with Apple (AAPL.US). Despite the company still facing dual pressures from fierce competition and macroeconomic factors, the stock price continues to rise strongly.

Options traders expect that the stock price reaction after this financial report will be more intense than usual. Alibaba's stock price has already exceeded analysts' target expectations, is technically in overbought territory, and its price-to-earnings ratio has reached its highest point in two years.

HSBC analyst Charlene Liu wrote in a report, "The fundamentals will have to become the focus again" to drive further stock price increases. This includes stabilizing e-commerce market share, a clear AI monetization strategy, accelerating cloud revenue growth, and improving profit margins.

The DeepSeek craze has raised market expectations that accelerated AI applications will drive demand for Alibaba's leading cloud market services. The stock's current price-to-earnings ratio exceeds 13 times, compared to less than 9 times last month.

Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management, stated, "If Alibaba's AI story continues to unfold, its valuation could return to the five-year average level of 15 times." However, he also pointed out that this round of gains faces challenges, including the level of stimulus measures announced at the upcoming government meeting and the implementation of U.S. tariffs.

From the market reaction following Baidu's (BIDU.US) earnings announcement this week, it is quite challenging for this earnings season to leave a deep impression on the market.

Alibaba's financial report will be closely watched, as the market will look for clues on how it leverages AI demand and avoids impacting profitability in price wars with competitors.

Analysts expect that for the third fiscal quarter ending in December, the company's sales will grow by 6.5%, an increase of more than one percentage point compared to the previous quarter and the same period last year. The market generally expects an adjusted net profit margin of 16.6%, higher than the previous quarter's 13.2%.

The cloud business will be of particular focus, with analysts expecting revenue growth of 9.7% for the latest quarter, up from 7% in the previous quarter.

In the five trading days leading up to Tuesday, Alibaba's daily options trading volume exceeded 180,000 contracts, while the average trading volume over the past 20 days was about 110,000 contracts. Investors are preparing for a 6.1% volatility in the stock after the earnings report while also buying call options, with the average price fluctuation of the stock after the last eight quarterly earnings reports being 4.8% During the earnings call, investors will also focus on whether Alibaba can fend off competitors in the emerging AI field. DeepSeek demonstrated how to reduce technology costs, but it also increases the threat of new competitors entering the market.

Manish Bhargava, CEO of Straits Investment Management, stated: "While Alibaba is a key AI player among China's blue-chip stocks, it still faces fierce competition from Baidu, Tencent (00700), and Huawei. Alibaba Cloud is a strong competitor in AI infrastructure, but its success depends on execution, regulatory dynamics, and market acceptance."