Why Alibaba Stock Was Underwater Today
Alibaba Group's American depositary receipts (ADRs) fell 0.6% amid a recommendation downgrade by analyst Bo Pei, who changed his rating from hold to buy but raised the price target to $180 from $145. Pei believes Alibaba's recent price surge has priced in its potential, exposing it to short-term downside risk. The previous appeal of Alibaba's ADRs was their significant discount compared to U.S. tech stocks, which has diminished following the recent rally. Despite this, Pei remains optimistic about the company's future in AI technologies and its partnerships.
Monster Chinese tech company Alibaba Group (BABA -0.57%) wasn't looking all that mighty on the second-to-last trading day of the week, at least as far as its American depositary receipts (ADRs) were concerned. They shed 0.6% of their value that day, with a recommendation downgrade from an analyst being a chief catalyst. Alibaba's dip was close to that of the S&P 500 (^GSPC -0.50%) that day.
Fairly valued after rally
Well before the market open Thursday, US Tiger Securities' Bo Pei changed his Alibaba recommendation to buy from hold. Counterintuitively, this was accompanied by a price target raise to $180 per ADR from the pundit's previous level of $145.
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Also rather counterintuitively, Pei's move comes just after Alibaba made several announcements about a stronger push into artificial intelligence (AI) technologies. Among other items, it said it would open new data centers to help stream AI functionalities, and trumpeted a fresh partnership with cutting-edge U.S. chipmaker Nvidia.
According to reports, the analyst's adjustment derives from his belief that with the recent bull run of the ADRs, Alibaba's potential has been priced into its equity. This exposes the value of the ADRs to short-term, downside risk.
No longer an irresistible discount
The analyst added that previously, one great appeal of Alibaba's ADRs were their significant discount to roughly comparable U.S. tech stocks. This has essentially been erased by the recent run-up in price. While Pei expressed admiration for the company's performance and its future-forward strategy, he thinks its current price basically reflects this.
