Why Is Alibaba (BABA) Stock Up Today?

Alibaba (NYSE:BABA) stock is rallying after the company stated that it would buy back $25 billion of its own shares. The conglomerate had previously planned to purchase $15 billion of BABA stock. In early trading, Alibaba was climbing 13%.

The Alibaba (BABA) logo featured outside of an office building with bushes in the background
Source: zhu difeng / Shutterstock.com

The value of Alibaba’s planned $25 billion share buyback is now equal to 8% of the stock’s market capitalization of $315 billion.

What Happened With BABA Stock

Since November 2020, Alibaba and its shares have been significantly hurt by Beijing’s initiatives targeting the tech sector. At the end of 2020, the Chinese government prevented Alibaba’s subsidiary, Ant Group, from launching an initial public offering.

And in April 2021, Chinese authorities hit Alibaba with a $2.8 billion fine for allegedly undertaking anti-competitive practices. The government has also passed legislation restricting consumer-facing tech companies’ ability to compete with each other, as well as laws that require tech firms to step up security efforts.

Investors should note that Alibaba is not the only company that has been impacted. Indeed, Beijing’s tech crackdown has also hit Tencent (OTCMKTS:TCEHY) and Didi (NYSE:DIDI).

Delisting Threats Add to Troubles

Recently, other events have negatively affected the performance of BABA stock.

On March 11, the U.S. Securities and Exchange Commission identified five Chinese companies whose stock could be delisted from American exchanges. According to the agency, their audits do not meet the standards that U.S. law requires.

While Alibaba was not one of the five companies named, the announcement sparked fears that other China-based firms could ultimately be removed from American stock exchanges.

Also worth noting is that this month, China has locked down a number of its cities, including Shenzhen, in an effort to keep a lid on rising Covid-19 cases.

Buyback Comes as Alibaba Turns Around

On March 16, however, investors became much more bullish on the Chinese tech sector. That’s because state officials laid out new plans to support the market while reporting that U.S. and Chinese officials were hammering out a plan on how to regulate Chinese companies whose shares trade in America. And importantly, Chinese officials plan to seek to make Hong Kong’s stocks less volatile.

After BABA stock tumbled 56% over the last year, investors likely see the company’s decision to greatly increase the value of its share buybacks as a sign that the conglomerate is very confident in its outlook.

And showing that American investors are becoming much more upbeat on Alibaba, BABA stock has now jumped roughly 50% since March 16.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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