Alibaba Shares Fall On Report Of U.S. Scrutiny Of Apple AI Deal

Shares in Chinese e-commerce giant Alibaba fell as much as 4.8% on Monday in Hong Kong as a deal to provide AI technology to iPhones sold in China faced a possible backlash in the U.S.

Investors in Alibaba, which is also listed on the New York Stock Exchange, were reacting to a New York Times story published Saturday that said the U.S. government is looking into Apple’ s plan to use Alibaba’s AI to offer more intelligent smartphone assistants in its second largest market by sales, China.

According to the Times story, White House officials and congressional lawmakers are concerned that such a plan might help a Chinese company strengthen its AI capabilities and deepen Apple’s exposure to China’s censorship and data sharing laws. The paper cited three anonymous sources with knowledge of the matter.

Alibaba and Apple didn’t respond to emailed and messaged requests for comment from Forbes Asia.

“Under the trade war between U.S. and China, issues such as small parcel tariffs and [Alibaba’s] collaboration with Apple have become sources of concern,” Dickie Wong, Hong Kong-based executive director of research at Kingston Securities, says by text messages.

Wong was also referring to the Donald Trump administration’s decision to impose duties on cross-border packages valued $800 or less. Although such duties were lowered following China-U.S. trade negotiations that led to most of the tit-for-tat tariffs to be suspended for 90 days starting from mid-May, tensions between the world’s two largest economies remain high, according to a May 16 report from S&P Global Ratings.

“In particular, the recent U.S.-China agreement is only for a 90-day pause,” the report reads. “After that period lapses, and absent an agreement, tariffs are likely to go up again, perhaps sharply.”

For years, Alibaba and competitors Shein and PDD Holding’s Temu platform used the duty exemption on small parcels to ship directly to American consumers and expand in the U.S. The company, which acknowledges globalization as a key driver of its growth, reported last Thursday disappointing results for the three months that ended in March.

Total sales for the period rose 7% year-on-year to 236.4 billion yuan ($32.6 billion). Net income came in at 12 billion yuan, a 1,203% surge from the same period a year ago that was largely due to changes in the value of the company’s equity investments.

Even so, the results missed market expectations, Wang Xiaoyan, a Shanghai-based analyst at research firm 86Research, says by WeChat. Alibaba’s New York- and Hong Kong-listed shares plunged Friday after the weaker-than-expected results were reported.

Wang adds that profit down the road may fluctuate further as Alibaba invests more in so-called on-demand delivery services, which promise to deliver items ordered online within an hour. Investors were hoping for higher growth at Alibaba’s cloud computing unit, where sales grew 18% year-on-year to 30.1 billion yuan during the quarter, as they thought China’s AI advances might lead to more use of the company’s products that help to crunch and store data, she says.