Alibaba Analysis: Uptrend Break Attempt Amid Rising AI Investment

Alibaba reported its first-quarter results on 20 August, revealing a mixed picture for investors. Revenue increased by 9%, driven by accelerating growth in its cloud computing and AI businesses, but net profit fell by nearly three-quarters as capital expenditure on AI infrastructure surged.

Management said it expects these investments to reach break-even within the next three years. Meanwhile, free cash flow turned negative as spending on computing capacity continued to rise. To finance the further development of its full-stack AI ecosystem, Alibaba also completed a new share offering on the Hong Kong Stock Exchange this week, raising approximately $10.2 billion. Investors responded cautiously to the combination of weaker earnings and equity dilution.

Technical Analysis of Alibaba

The four-hour chart shows a clear short-term uptrend that began in late July, with the share price climbing from around $92.00 to the $133.00 resistance area.

The stock is now attempting to break below its ascending trendline after buyers failed to maintain momentum following the test of the recent highs. On 21 August, the price moved beneath the lower boundary of the current market profile at $121.50 on exceptionally high trading volume. If sellers extend the decline, the next significant support lies near $113.00.

Should the move prove to be a false breakout, attention will shift to a cluster of key resistance levels within the market profile. The Point of Control (POC) at $128.50 and the upper profile boundary at $129.50 sit very close together, creating a potentially strong resistance zone. Above this area, the major resistance remains at $133.00.

The RSI + MAs indicator currently stands at 41, 48 and 51. RSI has slipped below the neutral zone, while both moving averages remain near the middle of their range, suggesting that bearish momentum has yet to receive full confirmation.

Key Takeaways

Alibaba's disappointing profit performance and sizeable share issuance have weighed on sentiment following its failed attempt to establish itself above $130.00. The stock's next move is likely to depend on whether investors continue to focus on near-term earnings pressure or place greater value on the company's long-term AI growth strategy.

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