Alibaba Wins Court Ruling Against Pentagon Restriction, But BABA Stock Dips Premarket Anyway

• The Pentagon added Alibaba to its list of Chinese military-linked companies, known as the 1260H list, in June.
• The ruling does not remove Alibaba from the blacklist itself.
• Chinese tech stocks have faced a sharp selloff in recent months; BABA is down 31% year to date.

Alibaba (BABA) shares fell 1.3% in early premarket trading on Tuesday, despite the Chinese tech giant winning a key legal challenge against the Donald Trump administration’s move to bar certain entities from doing business with it. 

Alibaba secured a court ruling on Monday blocking the administration from enforcing a restriction tied to its U.S. Department of Defense blacklist designation, Bloomberg reported.

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A federal judge in San Jose, California, ordered the administration to stop enforcing a ban on the Pentagon doing business with any company that engages in “lobbying activities” for Alibaba after a new U.S. law targeting entities allegedly aiding China’s military took effect in June.

The ruling, however, does not remove Alibaba from the blacklist itself, according to the report. The Pentagon added Alibaba to its list of Chinese military-linked companies, known as the 1260H list, also in June. Alibaba has challenged that designation. 

Chinese AI And Chip Stocks Extend Selloff

The development failed to boost sentiment for BABA amid a challenging stretch for Chinese tech stocks.

In recent months, investors have pulled back from Chinese AI and semiconductor names because of valuation concerns and persistent weakness in the Chinese economy.

China’s STAR 50 index, which tracks leading AI and semiconductor companies, has tumbled 40% in less than four months, wiping out around $480 billion in market value, Reuters reported.

The broader CSI 300 index has fallen about 20% from its June highs. China’s ChangXin Memory Technologies (CXMT), a closely watched memory chipmaker following its stellar IPO, has lost more than a quarter of its value over the past month, while robotics maker Unitree has shed half its value since its August listing.

Chipmakers MetaX Integrated Circuits and Moore Threads Technology, which surged 700% and 400%, respectively, on their market debuts last year, have also lost roughly half their value since July.

AI stocks account for 42% of China’s market capitalization and 57% of turnover across mainland-listed and Hong Kong-listed shares, according to Goldman Sachs data cited by Reuters.

Retail View On BABA, Chinese Tech Stocks

BABA stock fell nearly 9% last week to a three-month low, and it is currently down 31% year to date.

On Stocktwits, retail sentiment for BABA was ‘neutral’ on Tuesday and has mostly stayed in that zone over the past month. The sentiment was ‘bearish’ for Baidu (BIDU) and ‘extremely bearish’ for KraneShares CSI China Internet ETF (KWEB).

“$BABA such an easy short. just short it down every day,” said a trader, expressing frustration.

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