Alibaba Stock Is Down

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Alibaba Stock Is Down

Alibaba Stock Is Down 60%. Should You Buy It?

Alibaba (BABA) stock is trading far away from its ATH. The data shows it is around 60% lower its ATH set in 2020. So, does this mean you should buy the Alibaba stock at a discount?

Analysts think now is not a good time to buy Alibaba stock. There are two key reasons why you should avoid Alibaba stock for now.

Earnings Base Is Shrinking

The revenue is growing, but the earnings base is shrinking. The data from the 2nd quarter shows an 8.6% increase in revenue. However, the net income, without including extra items, is down by almost 75.6% during the same period.

The EPS of Alibaba dropped from around RMB 18.57 to near RMB 4.51. So, it is clear that things are not looking good for Alibaba.

The profit margins have also declined from 14.8% to near 7%. So, it is clear that the financial position doesn't show a good picture of Alibaba's future.

AI Buildout Is Burning Cash

Every other tech company is spending huge amounts of money on the AI buildout. Alibaba is no exception, as its capex has gone up by 75% y/y during the quarter.

The company has a 3-year plan to spend around RMB 380 billion. For now, it has spent around RMB 190 billion. So, it is around halfway there but will have to spend more in the coming years.

Analysts think it will take 3 years for Alibaba to break even on its AI capital expenditures. That period could shrink to 2.5 years if the company's margins improve.

Do Not Buy Alibaba Stock

There's no doubt that Alibaba has strong cash reserves. So, it can easily go like this for several years. Also, cloud growth remains strong, which is a good sign.

But for now, it is better to look elsewhere in the tech sector. It is clear that Alibaba is facing challenges on multiple fronts. In an economy like this, it is not a good idea to put your money on a business that's already struggling.

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