Alibaba Group (NYSE:BABA)'s US-listed shares jumped almost 11% on Tuesday, supported by a temporary legal reprieve in the United States and growing optimism ahead of the company's upcoming earnings report.
Investor sentiment improved after a US federal judge temporarily blocked restrictions tied to the Pentagon's designation of Alibaba under its Section 1260H list while the company's legal challenge proceeds, according to Bloomberg.
The order allows Alibaba to continue working with US lobbying firms during the court process, preserving its ability to engage with US policymakers on issues related to its cloud computing, e-commerce and capital markets businesses.
The legal challenge stems from the US Department of Defense's June decision to add Alibaba, along with several other Chinese companies, to its list of entities identified as having ties to China's military. The broader review of the designation remains ongoing.
Also supporting the stock was growing optimism ahead of Alibaba's June-quarter earnings, expected in late August or early September.
Jefferies expects Alibaba to deliver "strong execution despite macro headwinds," with combined EBITA from its China e-commerce and Alibaba International Digital Commerce businesses remaining roughly flat year over year.
The firm believes that weakness in industry gross merchandise value growth is already reflected in the stock price and reaffirmed Alibaba as its top pick on its artificial intelligence investment theme.
The analysts forecast total June-quarter revenue to increase 9% year over year to about RMB270 billion, in line with market consensus. They expect Cloud Intelligent Group revenue to grow 45% from a year earlier, above consensus estimates, driven by demand for artificial intelligence services and model-as-a-service offerings. Jefferies also expects cloud margins to improve sequentially and forecasts Alibaba International Digital Commerce Group will return to profit during the quarter.
The analysts wrote that stronger cloud performance and improving fundamentals in Alibaba's Quick Commerce business should help offset softer trends in China's broader online retail market, where industry online shopping gross merchandise value growth slowed during April and May.