• The stock is now technically overheated and more expensive

• The company needs a ‘clear strategy to monetize AI’: HSBC

Alibaba Group Holding Ltd. faces a key test in its earnings presentation Thursday after a DeepSeek-sparked rally added more than $110 billion to its market value.

Hong Kong-listed shares of Alibaba surged nearly 60% from a January low through Wednesday on excitement over its artificial intelligence model, co-founder Jack Ma’s meeting with top officials and a tie-up with Apple Inc. That’s come even as the company faces concerns over the impact of fierce competition and China’s struggling economy.

Options traders are predicting a bigger-than-usual stock reaction to the results. Shares have shot past analyst price targets, trading at technically overheated levels and at the highest earnings multiple in two years.

“Fundamentals will have to be back in focus” to drive further gains in the stock, HSBC Holdings PLC analyst Charlene Liu wrote in a note. This includes e-commerce market share stabilization as well as “a clear strategy to monetize AI and accelerate cloud revenue growth and margin improvement.”

The DeepSeek frenzy has raised expectations that accelerating AI adoption will boost demand for Alibaba Cloud’s market-leading services. The stock is trading at about 13 times estimated forward earnings, up from less than 9 times just last month.

Alibaba’s valuation could return to its five-year average of 15 times “if its AI story continues to unfold,” said Xiadong Bao, fund manager at Edmond de Rothschild Asset Management. The rally faces challenges, however, including the level of stimulus announced at upcoming government meetings and the start of US tariffs, he said.

The bar to impress the market this earnings season looks high, judging from the negative reaction to Baidu Inc.’s results this week. The shares slid as investors focused on weakness in its core search business despite strong momentum in its AI cloud business.

Alibaba’s results will be parsed for clues on its success in capitalizing on AI demand, while sheltering its earnings from the impact of price competition with rival hyperscalers and e-commerce players.

Analysts estimate sales rose 6.5% in the three months through December, up more than a full percentage point versus both the previous quarter and year-ago period. The consensus expects a net adjusted profit margin of 16.6%, up from 13.2% for the September-ended quarter.

Particular attention will be paid to the cloud business, where analysts project revenue growth of 9.7% for the latest quarter, up from the previous period’s 7%.

Daily options volume surpassed 180,000 contracts in the five days through Tuesday, compared with an average of about 110,000 over the past 20 days. As they bid up bullish contracts, investors are positioned for a 6.1% move in the stock after the earnings, compared with an average gain or drop of 4.8% following the last eight quarterly releases.

In the earnings call, investors will also be looking for signs on whether Alibaba can fend off peers in the burgeoning AI realm. DeepSeek has highlighted how the costs of the technology can be lowered, but it has also raised the threat of easier entry by new rivals.

“While Alibaba is a key AI player among China’s blue chips, it still faces stiff competition from Baidu, Tencent and Huawei,” said Manish Bhargava, chief executive officer at Straits Investment Management. “Alibaba Cloud is a strong contender in AI infrastructure, but its success depends on execution, regulatory dynamics and market adoption.”