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Rebel Finance Podcast-Episode 5 is out, we talk to David Blackmon about all things energy

Episode 6 will be live today at 11:30AM EST

Market Recap

As I was losing money playing Black Jack yesterday we had what I think was the second worst day in the AI space this year. Alibaba chairman Joe Tsai said….

Meanwhile, China’s National Development and Reform Commission has been advising Chinese tech companies against using NVDAs H20 chips, that puts $17BN a year at risk.

Nvidia’s China sales face threat from Beijing’s environmental curbs-FT

If that wasn’t bad enough TD Cowen again reported that MSFT is pulling back from previously planned data center products.

Microsoft Abandons Data Center Projects, TD Cowen Says-Bloomberg

Oh, and Trump announced permanent tariffs on all cars made outside of the US.

There are a few areas I have been long off the bottom that are now looking like they may be turning back down…..

I mentioned that Mag 7 before I left as possible beneficiaries from a rally. They don’t look awful yet, but TSLA did fail at the 200 day yesterday…

Looking through the charts I don’t see anything that I would like to buy at the moment.

Alibaba Shows Off New AI Model After Warning U.S. Big Tech. It Looks Made for Apple.-Barron’s

Lot of news out of China and BABA. BABA has been great since the start of the year but has recently flat lined and just broke below the 20 day EMA, though it is green this morning. Watch $126.10, that needs to hold for the bulls.

Intermediate/longer term I had Chat GPT analyze this article…

Here's an in-depth analysis of Alibaba's new AI announcement, its recent stock performance, comparisons to U.S. AI names, and the company's potential rating (1-10):

Alibaba's New AI Model: A Significant Step

What was announced?
Alibaba introduced Qwen2.5-Omni-7B, a multimodal AI model capable of processing text, images, audio, and videos with real-time natural speech generation. Most notably, the model has only 7 billion parameters, making it small enough to potentially run locally on smartphones and laptops without the constant need for server-based cloud connections.

Why is this significant?

• Edge Computing: By focusing on smaller, edge-device-friendly AI, Alibaba is aligning with trends toward privacy, data security, and localized processing, which are increasingly important globally.

• Smartphone Integration: A compact, capable AI model positions Alibaba well to integrate directly into devices such as smartphones, particularly beneficial in markets like China.

• Apple Partnership Potential: Alibaba explicitly targets Apple’s challenges in China, where Apple's iPhone sales fell 17% in 2024. Alibaba’s AI model could become integral in Apple's local offerings as they await regulatory approval to launch their AI services in the Chinese market.

Why Has Alibaba’s Stock Been Strong Recently?

Alibaba’s stock has recently experienced notable strength, driven by multiple factors:

1. AI & Cloud Expansion: Alibaba’s strategic shift to focus heavily on AI, announcing plans to spend over $50 billion on AI and cloud computing over the next three years, has reinvigorated investor optimism.

2. Chinese Market Sentiment Improvement: Investor sentiment toward Chinese tech ADRs has improved, driven by reduced regulatory pressures, easing geopolitical concerns, and compelling valuations relative to U.S. peers.

3. Valuation and Rotation: Alibaba was trading at a historically low valuation, attracting value investors. The rotation from richly-valued U.S. AI stocks into underappreciated Chinese AI names has also supported recent performance.

Comparison to U.S. AI Names

Alibaba's approach to AI contrasts significantly with major U.S. technology companies (OpenAI, Alphabet, Meta, Microsoft, etc.):

• Scale and Spending:

  • U.S. AI Companies: Have pursued aggressive capital expenditures, building massive data centers and deploying very large models (e.g., OpenAI’s GPT-4 and Nvidia-backed deployments), believing that massive scale is necessary to maintain competitive advantage.

  • Alibaba: Chairman Joe Tsai explicitly criticized the enormous scale of U.S. AI investments, advocating for efficiency, innovation at smaller scales, and profitability.

• Model Differentiation:

  • U.S. AI Companies: Have built massive, server-centric models focused on enterprise applications and data center monetization.

  • Alibaba: By creating a smaller, more deployable model, Alibaba aims at device-level consumer markets, aligning closely with hardware companies such as Apple and potentially creating a strategic moat within China.

Potential Impact & Implications:

Potential Winners:

• Alibaba: Positioned to lead in AI integration within China's local market, especially in mobile and consumer sectors.

• Apple: Directly benefits from partnership and AI integration into Chinese iPhones, potentially reversing declines in Chinese market share.

• Edge Computing Companies: Semiconductor and hardware players capable of facilitating local AI processing, including Qualcomm (QCOM) and MediaTek, could benefit indirectly.

Potential Losers:

• Large-scale Cloud Players (Google, Amazon, Microsoft): A trend toward local and edge-based AI models could reduce incremental revenue opportunities associated with large-scale cloud AI deployments.

• Other Chinese AI Startups (e.g., DeepSeek): Face direct competitive pressures from Alibaba's aggressive push and well-established ecosystem.

Regulatory Considerations:

• China Regulatory Approval:
  Alibaba and Apple’s proposed partnership awaits Chinese regulatory approval, which could introduce timing uncertainties or limitations.

• U.S.-China Tech Tensions:
  Potential geopolitical tension or export restrictions (such as semiconductor technology) could pose a long-term strategic risk.

Rating Alibaba’s AI Potential: 8.5/10

Why not higher?

• Risks from U.S.-China geopolitical tensions and ongoing regulatory uncertainty in China remain persistent and could cap upside.

• Still catching up technologically with large-scale U.S. AI investments and models (e.g., OpenAI's GPT-4 or Google's Gemini).

Why not lower?

• Clear, differentiated strategy in mobile and local AI gives Alibaba unique competitive advantages.

• Compelling valuation and recent positive momentum improve risk/reward attractiveness.

Conclusion

Alibaba’s recent AI announcement represents a strategic pivot toward consumer-focused, mobile-friendly AI, potentially enabling deeper penetration within China’s critical mobile market. While U.S. AI companies rely on large, resource-intensive models and data centers, Alibaba’s strategic focus on small, efficient models may unlock new markets and enable valuable partnerships (like Apple).

Alibaba’s recent stock strength has been underpinned by improved sentiment towards Chinese tech, compelling valuations, and the strategic clarity demonstrated by its AI initiatives. Though potential geopolitical and regulatory risks persist, Alibaba’s move positions it as a strong candidate to bridge AI capabilities into consumer hardware, differentiating it from large-scale U.S. AI rivals.

Given these dynamics, Alibaba represents a highly attractive thematic AI opportunity, especially given its current valuation and strategic positioning. Investors looking to capitalize on AI-driven consumer innovations would be well-advised to closely consider Alibaba’s developments.

Final Rating: 8.5/10 (Strong Buy, thematic opportunity with measured risks)

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