BABA Earnings Mixed Despite Cloud Growth: What's Next for AI Push?

network.com. We're back on morning trade live. Let's focus on Alibaba after the company posted a bottom line miss for the first quarter while beating Street's expectations for revenue. The Chinese tech giant CEO, highlighting artificial intelligence in his commentary on the report, saying the company is in a superior position to capture the substantial growth of demand for AI. They're obviously spending a lot of it that's weighing on profits. We're trading down 3.5% on Alibaba. We had seen some gains going into this. A few items with respect to the news around quant numbers around obviously what they're doing with gaming, trying to shed some of the core assets. We've had Alipay news as well. But obviously with these numbers this morning we are seeing shares in Baba under pressure. That's the focus of the morning trade. For a closer look at the report is Jenny Horne, co-host of Next Gen Investing. Jenny. Not the sort of report that the street was looking out for. Just walk us through the numbers and the reaction we're seeing right now. Yeah. And I will say that we're seeing some pressure today not selling off by any means, but unfortunately not really contributing anything positive to its already weaker years. We've pulled back now about 15% year to date, down another 3.5% today. And so there were still definitely stand out things to like in this report. Like we did see cloud revenue climb 45% accelerating from the prior quarter and exceeding what many of even the most bullish analysts were looking for. Their AI related revenue also did post triple digit growth for the 12th consecutive quarter. Obviously significant there. But cloud Ebit did also surge roughly 133%, showing really some strong trends and broader AI monetization. Overall revenue accelerated to 9%. That was up from their 3% pace of growth in the previous quarter. And they highlighted, as you just mentioned, the increasing commercialization of their AI ecosystem and cloud platform. But profitability was much weaker than expected, as we did see AI spending surge. And so net income fell roughly 75% from last year. Adjusted earnings on the headline figure also did slightly miss expectations, and free cash flow came in negative compared to a much smaller outflow just a year ago. And so their core China e-commerce business remained relatively mixed with some overall weakness in traditional online retail. That was offset by the faster growth we still saw in their quick commercial e-commerce services. But investors seemingly did still like the strong AI demand. But the market right now more focused on the fact that AI spending is going to be required to achieve these levels of growth. Capital expenditures jumping 75% is not a small figure, and earnings with missing expectations profits collapsing. It does then create, obviously, the just overall different financial landscape for companies that are trying to grow into AI. And so this was really an AI growth story rather than just a pure earnings story is again, we saw cloud and AI related revenues remain relatively strong, but their spending so aggressively that we're seeing some metrics take a hit. And very similar to the sentiment we got from Baidu actually earlier this week, where the cost of growing in AI is remaining in focus. So seemingly, that is not an isolated concern to just the US based tech companies that we've seen. Obviously, with some more challenge free cash flow this quarter, it's also impacting, you know, companies that are based in China, like Alibaba today. Yeah, absolutely. And you raise a really interesting point about Baidu because we're just not seeing that investment paying off just yet. I mean, everyone is looking for monetization in these numbers right now, but a few things weighing on the company as well with obviously what's been happening in the domestic economy. So it's very much a sort of two track situation for Baba AI versus what is going on from the macro perspective. Really appreciate it. Thanks so much for joining us, Jenny, and breaking down some of those numbers. Let's trade Baba now with Joe Teague, a portfolio manager over the Rational Equity Armor Fund. Very different year for Baba compared to last year. As far as you know, the overall year to date performance. You know it was a mixed report. Some things to like, but how would you trade it, for example, purposes? Joe. Yeah, you're seeing a little bit of a softness in the stock. Some pullback, just some uncertainty of course, obviously in the name with, you know, some of the hyperscalers here, some of the big names here, there's a little bit better read through on, you know for Alphabet and Amazon how they're going to generate their revenue even if the AI trade struggles, you know, how are they going to justify all the spending? It's a lot more murky when you go overseas. So yeah, I do, I do understand the, the skepticism here that we're seeing from investors. So yeah, we're watching a little pullback. The AI growth has been good. Just a question of can they afford all this spending. Obviously that's the same story we're seeing here too. So having said that I'd just be looking at an example trade looking for for further pullback. Just kind of trading the weakness. Maybe looking for a bounce or maybe looking for a lower price to enter if I were going to enter. So I'd just be looking out into September selling the 120 strike put. Right now it's about 125 Alibaba. So we're looking for further pullback or staying here and collecting my premiums. And right now it'd be about $3.15 on that put. So yeah it'd be a nice juicy premium to collect here just for a few more weeks here awaiting while, while we're kind of solidifying here and figuring out these earnings. All right. And just overall thought this morning for us, Joe. I mean obviously Treasury yields have kind of done a round trip here. We've got oil higher. We've had the stocks on the back foot. Once again it just looks like I don't know maybe oil and Philly Fed are contributing to this move higher as far as yields are concerned. Just walk us through what you're thinking. Yeah. So I think you're exactly right. Maybe we're just a little bit complacent here. We're kind of literally the dog days of summer here coming into the end of August here. This is not uncommon. We also have the VIX sub 16. It's a lot higher today. But of course we're we're at very low levels for volatility. So it's interesting to me to see all this playing out. It's kind of one thing I'm watching here is volatility is ticking higher as this is a buying opportunity for volatility. Perhaps while we're coming into this fourth quarter. That's just an interesting thing that I'm watching. Obviously there's a lot going on. We all know that there always is with the stock market so far this year there's there's been a lot going on and the market has been able to climb the wall of worry while we've been doing all that. So there's no reason to think that's going to stop necessarily right now. But eventually, of course, that does stop. Yeah. So much for a quiet summer. At least we're seeing a little bit of momentum in chips today. It looks like they're recovering after the two sessions of losses. Really appreciate it Joe.