What Alibaba’s New Server Chip Means for its Stock Price

Alibaba launched a new server chip this week in an attempt to boost its cloud computing earnings, but what does this mean for investors?

Oct. 20, 2021

Chinese e-commerce giant Alibaba Group (NYSE: BABA) has this week launched a newly developed server chip. The chips will not be sold directly to customers, but will instead be utilized in the company’s cloud computing offerings. Customers will be able to benefit by purchasing services, such as cloud storage and artificial intelligence applications, based on the new technology. This new chip will propel the company into competition with cloud computing leaders like Microsoft and Amazon.

So what does this mean for investors?

Currently, Alibaba is China’s largest cloud computing company. It holds a 33.8% market share, outperforming the nearest competitor Huawei by almost 15%. However, the company’s growth in this area is slowing as competitors rush to make up ground. The new chip will enable Alibaba to become more of a player in the global market. Alibaba has aggressively invested in global cloud computing already this year by opening two data centers outside of China and through the launch of a cloud-based live streaming product targeted at the online shopping industry.

Despite still trailing the market leaders in Microsoft, Amazon, and Google, Alibaba investors should take note of the attempts to rapidly expand one of its long-term key profit drivers into new territories. October has seen a rally in share price following a sharp drop throughout the previous year, up over 20% from a low of $138.43 at the beginning of the month.

So should I buy Alibaba stock?

Following massive volatility amongst Chinese stocks this year, increased government regulations on its own conglomerates, and a $2.8 billion anti-monopoly fine in April; this hasn’t been the best year to be an Alibaba shareholder. Prices are only beginning to experience a small rally from lows not seen since before 2019. However, considering the volatility of Chinese stocks this year and the impending national data privacy laws, it might be best to avoid Alibaba stock for the time being.

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