Alibaba stock continues to decline. Analysts are quick to cut targets after abandoning the offer.

Alibaba stock was on track for a second day of losses, after the Chinese tech giant revealed on Thursday that new US export restrictions on chips were hurting its cloud computing business so much that it scrapped plans to spin off the division.

Shares of Alibaba (ticker: BABA) fell 2.6% in Friday trading, continuing the pain after the stock fell 9.1% on Thursday, its worst daily performance in more than a year.

Completely overshadowed by the shock news that Alibaba’s better-than-expected quarterly results released on Thursday was that it had canceled a highly anticipated bid for its cloud computing division, which also includes its artificial intelligence (AI) efforts.

The expansion of US chip export controls in October — an attempt by the White House to limit China’s access to critical technology, such as artificial intelligence — “may materially and adversely impact Cloud Intelligence Group’s ability to deliver products and services and perform under existing contracts,” Alibaba said. “It has negatively impacted our results of operations and financial condition.” The company added that the process of distributing the cloud arm to shareholders has been postponed as a result of the division’s uncertain prospects.

This is bad news for Alibaba stock for two reasons. First, the group revealed that its most exciting and growth-oriented division was facing an uncontrollable financial impact. Second, the cloud offering was at the heart of Alibaba’s ambitious plan announced earlier this year to restructure itself from a conglomerate into a holding company in a bid to unlock value for shareholders. no more.

Wall Street did not back down, as analysts were quick to lower their price targets for Alibaba shares, although many maintained their buy ratings on the stock that has suffered three years of underperformance, largely as a result of regulatory issues.

“We believe the stock is sold off about 10% as investors exit the sum of the parts and focus returns to the overall recovery in China. “We view Alibaba as an attractive turnaround story,” said James Li, an analyst at Mizuho. “Sum of the parts investors point to those Who may have bought Alibaba shares after the spinoff was unveiled — a trade based on the possibility that the shares would give up their mass discount if the cloud division received a higher valuation on its own.

Lee’s team at Mizuho lowered their price target on Alibaba from $120 to $87.07. The stock closed at $79.11 on Thursday.

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“Any further prosecution of its cloud subsidiary would not have been a setback for its capital management plan,” said Fawn Jiang, an analyst at Benchmark. It was undoubtedly a disappointing quarter; But we do not see a fundamental structural change.” Benchmark maintained its Buy rating with a price target of $150, and this remains a bullish call.

Other analysts followed suit in trimming their forecasts, with 22 analysts surveyed by FactSet lowering their price targets for Alibaba shares following Thursday’s news.

Write to Jack Denton at [email protected]

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