Alibaba recently announced modest revenue growth, but its cloud business skyrocketed by 26% year-over-year, driven by high demand for AI services. This news boosted shares listed in Hong Kong by 19% and U.S. ADRs by nearly 13%, highlighting the market’s focus on its cloud and AI potential despite a slight overall revenue miss. Alibaba is making cloud and AI services key growth areas. The company is integrating AI across its platforms and investing over ¥100 billion in AI infrastructure. Its AI product, Tongyi Qianwen, is already featured in apps like Taobao, and Alibaba is working on local alternatives to tools like ChatGPT. While Alibaba’s cloud growth competes with Microsoft’s rates, it still falls behind AWS in total revenue. Management’s guidance indicates that AI and cloud will be central to future growth, as Alibaba competes with JD.com, Pinduoduo, and Douyin in e-commerce. Tensions between the U.S. and China impact Alibaba, especially with export restrictions on its cloud strategy. On a positive note, regulations in China seem to have become more supportive of growth. Alibaba’s stock has shown strength despite geopolitical and regulatory headwinds, bouncing back significantly. For long-term investors, Alibaba’s evolution offers growth potential in cloud and AI, even though risks still exist. Currently, Alibaba shares are in an upward trend, with a post-earnings increase suggesting a positive outlook. A trade idea recommends entering around $131.86, aiming for a roughly 30% upside with a reward-to-risk ratio of about 3.5. This aligns with Alibaba’s potential for long-term recovery, considering its previous highs above $300. Investors should assess their strategies carefully, being aware of risks, and conduct thorough research before making decisions. After a strong post-earnings surge in late August 2025, Alibaba stock has pulled back slightly, nearing the $131 level. This drop seems to be a typical consolidation following a significant jump. Traders can use this moment to evaluate new positions as initial excitement has cooled. For derivative traders, the post-earnings decrease in volatility is key. Implied volatility on BABA options dropped from over 55% before the results to around 38% now, making options much cheaper than a few weeks ago, enhancing the appeal for bullish strategies. With the positive outlook in cloud and AI, buying call options is a direct way to capitalize on the upward momentum. October or November monthly options provide a good mix of time decay and exposure to the trend. A bull call spread—buying the $135 call and selling the $155 call—could effectively manage risk while reducing entry costs. The overall economic situation in China looks favorable. The Caixin Services PMI data released on September 1st showed a strong reading of 53.1, exceeding expectations and indicating ongoing expansion in the service sector. This positive macro environment supports the narrative of stabilizing domestic demand. For current shareholders wanting to generate income, selling covered calls against their position is a practical strategy. With stock prices around $131, selling October $150 strike calls could provide premium income while still allowing for considerable upside. This approach fits with the idea of a steady upward trend within the established channel. Investors should stay aware of risks, particularly the stop-loss level around $120.70 noted in the technical analysis. Buying protective puts with a strike price near $125 could hedge against sharp reversals due to geopolitical developments. However, recent reports about potential U.S.-China trade talks have slightly alleviated market concerns for now. Reflecting on the regulatory challenges of the early 2020s, the environment has improved but remains a consideration. Alibaba’s 26% cloud growth is impressive, especially as Tencent recently reported strong AI-driven demand with a 24% increase in its cloud business. The stock is still significantly below its all-time high of over $300, indicating ample opportunity for recovery if this new growth narrative holds.

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