Should You Buy Alibaba Stock This Month?

Key Points

• Recent news of a $10.2 billion secondary share sale doesn’t help the short-term case for this stock.

• Alibaba is spending heavily on AI infrastructure, and will direct all of the proceeds from this stock sale to its build-out.

• The stock could remain under near-term pressure.

• 10 stocks we like better than Alibaba Group ›

When it comes to buy-and-sell decisions, there are occasions when companies make it easy for investors, sending clear signals that inform the ultimate call to embrace or part ways with a specific stock.

That’s the case with Alibaba (NYSE: BABA). The consumer discretionary company is overtly telling market participants it’s not buy-worthy, at least over the next several days. That’s a harsh assessment to be sure, but it’s also one grounded in reality, and the reality is that the Chinese company’s recent news flow has largely been negative for shareholders.

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On Friday, the Chinese e-commerce giant announced plans for a secondary share offering of about $10.2 billion, which will dilute current shareholders by that amount. On Thursday, its market cap was above $310 billion. The sale price was set at an 8.4% discount to where Alibaba closed trading Friday.

Only the add-on offerings recently launched by Alphabet and Intel, at $80 billion and $15 billion, respectively, exceed Alibaba’s secondary stock sale.

Compounding the stock sale issue is the fact that Alibaba is telling investors that all proceeds will be directed to its artificial intelligence (AI) efforts. The problem with that message is that it arrived just a day after Alibaba delivered second-quarter results, telling shareholders that its profits for that period were sapped by, you guessed it, AI expenditures.

There’s something to be said for timing. Still, it appears Alibaba didn’t get that message because informing shareholders that their stakes are going to be diluted in the name of AI spending just a day after announcing that AI spending seriously crimped second-quarter profits is jamming a lot of rough news into a short time frame. Unappealing news flow and a limited appetite in the market for large-scale AI spending may be among the reasons some well-known investors are looking for options beyond Alibaba in the Chinese e-commerce space.

Combine those factors, and for those wondering how to buy Alibaba stock, it might be best to temper that wonderment in the near term. At a minimum, this secondary offering says there’s no need to rush into the shares in the next few days.

Should you buy stock in Alibaba Group right now?

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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Intel. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.