BABA and JD pop

Alibaba and JD just released their earnings and it tells us a lot about China’s economy. While Trump and Xi meeting today, lets take a look at the two of the most important companies in China right now.

Alibaba is no longer "China's Amazon." It is now a four-engine machine where the engines are running at very different speeds:

1. Taobao and Tmall (core e-commerce) — still the cash cow but margins compressing hard

2. Quick commerce (Taobao Instant Commerce + Ele.me) — the new battleground vs Meituan and JD, burning cash to win share

3. AIDC (AliExpress, Lazada, Trendyol) — international e-commerce, finally near break-even

4. Cloud Intelligence Group + Qwen — the AI engine, accelerating fast

Pre-market, the stock got punished. Down 3% on the open. The headline numbers looked ugly. Operating profit destroyed. Free cash flow negative. Twitter doom posts everywhere.

Then management got on the conference call.

And by close, BABA was up about 7%, trading near $145.

Meanwhile, JD reported the day before and the market made up its mind in 5 minutes. Clean beat. Stock popped 7% straight.

Two Chinese giants. Same quarter. Both ended the day up roughly the same amount. But the journey could not be more different.

Let me walk you through what actually happened.

📊 JD scorecard (the easy story)

Revenue: $46B for Q1 2026, up 4.9% year on year. Beat expectations.

JD Retail (the core e commerce business): operating profit $2.2B, up 17% year on year. Operating margin expanded to 5.6%, up from 4.9% a year ago. That is the highest margin JD Retail has ever reported. Six straight years of margin expansion.

Active customers: over 740 million. Ten straight quarters of double digit user growth.

Capital returns: $631M in buybacks during the quarter. That is real money returning to shareholders.

The drag: JD's food delivery business is still bleeding cash. That pulled group non GAAP net income down to $1.1B (from $1.9B last year). Management said losses have peaked.

Why the market loved it: Mature category. Clear path to profit. Easy thesis to underwrite.

📊 BABA scorecard (the story with a plot twist)

Revenue: $35B for Q4 FY2026, up 3% on the headline. Strip out the businesses they sold off last year (Sun Art and Intime supermarkets, finally got rid of these laggards), real growth was 11%. Solid.

Then the ugly part:

Adjusted operating profit: $740M, down 84% year on year. Non GAAP net income: basically zero. $12M for the entire quarter. Free cash flow: outflow of $2.5B.

This is why the stock dropped at the open. Anyone reading the headline thought "disaster."

Now here is what the headline missed. Buried inside the report were the numbers that actually matter:

Cloud Intelligence Group grew 38% year on year, up from 26% the previous quarter. External customer revenue grew 40%. AI products posted their 11th straight quarter of triple digit growth. Cloud margins expanded.

International e commerce (AliExpress, Lazada, Trendyol) narrowed from a $518M quarterly loss to a $20M loss. Essentially breakeven. After years of bleeding, the international business is finally close to making money.

Customer management revenue (the high margin ad business inside Taobao and Tmall) grew 8% on a like for like basis. Core ecommerce is healthy.

Then management got on the call. And this is where the market changed its mind.

🎙️ What flipped the stock during the call

CEO Eddie Wu said three things that mattered:

1. AI revenue is about to scale fast. Annualised recurring revenue from AI model and application services is expected to cross 10B yuan ($1.4B) in the June quarter and 30B yuan ($4.3B) by year end. That is real, measurable AI monetisation.

2. The AI investment ROI is "extremely clear" in 3 to 5 years. Management is not flinching. They are spending with conviction.

3. They will EXCEED the 380B yuan ($55B) three year capex plan. Not slow down. Speed up. This is a company that sees a closing window of opportunity and is going for it.

BABA is the only AI cloud provider in China delivering self developed AI chips at scale. Over 100,000 T-Head Zhenwu chips already deployed. 30 plus automakers using them.

That is the moat the market was missing.

🎯 Pete's Take

Yesterday was a textbook example of why I read the actual report, not the headline.

The market gets it wrong all the time in the first 5 minutes. Then over the next few hours, smart money reads the details, listens to the call, and the price corrects.

I have been holding BABA through the noise because the cloud and AI thesis is intact. The 38% cloud growth, the 11 straight quarters of triple digit AI growth, and now the explicit AI ARR guidance of 30B yuan by year end... these are not the numbers of a company in decline. These are the numbers of a company in the early innings of its AI cycle.

JD's bet is smaller and cleaner. Mature category. Visible path. Easy to own.

BABA's bet is bigger and messier. They are building a full AI stack (Qwen models, T-Head chips, cloud infrastructure) while also expanding quick commerce. The pain is concentrated in one income statement quarter. The payoff is spread across the next 3 to 5 years.

When a CEO tells you he sees a closing window and is going to spend MORE not less, you have two choices. Believe him and stay invested. Or sell into the noise. I am staying.

🔭 What I am watching next

For BABA: AI ARR delivery. Management gave us 10B yuan in June, 30B by year end. If they hit those numbers, the rerating is on. If they miss, I will rethink position size.

For JD: Whether food delivery losses actually narrow as promised. If yes, $34 can keep grinding higher.

For both: US China relations. Trump is in Beijing meeting Xi. Any de-escalation is a tailwind. Any escalation hits both regardless of fundamentals.

📌 Bottom line

JD gave us a clean win. The market processed it in minutes.

BABA gave us a messy report with a beautiful story underneath. The market took half a day to figure it out.

Both popped. Both deserve their move. JD wins on clarity. BABA wins on ambition.

I am holding my BABA position with conviction. The thesis is not just intact, it is strengthening. Yesterday's intraday reversal told me the market is finally starting to look past the EBITA number and into the cloud, the AI ARR, and the chip story.

Remember: when a stock drops 3% on a headline and rallies 7% on the substance, the lesson is that substance wins. Read the call. Do not trust the first 5 minutes.

Your money is just as precious as mine. I am not chasing the open. I am reading the actual report and listening to the actual call.

🎯 Join me live TONIGHT

I am going LIVE tonight for the Invest with Pete community. Free for everyone.

We will break down what the recent CPI shock means for your portfolio, where I see opportunity in this rotation, and the sectors I am watching closely.

I will also demonstrate an option strategy LIVE (which I think is perfect for the current environment)! So if you wanna learn advanced options, come join in!

📅 Thu, 14 May 🕘 9pm SGT 🔗 https://us06web.zoom.us/meeting/register/-0S3gqGqQlCACdVBwr--9A

Only 300 seats so come early!

Pete 🙏

Happy Hunting!

Pete
Invest with Pete

🚨‼️ By the way, I’ll never PM anyone on telegram or any other social media platforms. If you receive any “Pete” messaging you, these are scammers impersonating me. Pls beware!

The information provided in this newsletter is for informational purposes only and does not constitute financial advice. Readers should seek their own independent financial advice before making any investment decisions. Please note that while Pete is a portfolio manager, the opinions expressed in this newsletter are his own and do not represent the views of any organization. Always perform your own research and due diligence before investing.