Alibaba's Stock Surges on AI Breakthrough: ETFs in Focus

Alibaba Group Holding Ltd. BABA experienced its biggest stock surge in weeks after introducing the QwQ-32B model, an AI system that rivals DeepSeek but requires only a fraction of the data. Alibaba – the Chinese E-Commerce behemoth – open-sourced the model on Thursday. Shares of Alibaba rose 8.6% on Mar. 5, 2025 and added 0.6% after hours, on the very news.

This boost contributed to a nearly 5% rise in the broader Chinese tech index. The company has added approximately $135 billion in market value this year, driven by its AI advancements and signs of increasing government support.

The news put focus on BABA-heavy exchange-traded funds (ETFs) like Invesco Golden Dragon China ETF PGJ (BABA’s weight is 10.78%), MicroSectors FANG+ ETN FNGS (BABA’s weight is 9.55%), CoreValues Alpha Greater China Growth ETF CGRO (BABA’s weight is 7.86%) and Nightview Fund NITE (BABA’s weight is 7.14%).

Investor Sentiment and Business Outlook

According to Vey-Sern Ling, Managing Director at Union Bancaire Privee, Alibaba’s open-source reasoning model serves as the latest catalyst for investor enthusiasm, as quoted on Bloomberg. He noted that Alibaba’s core business is stabilizing and stands to benefit from China’s push to stimulate consumption. The growing role of AI is also expected to enhance its cloud computing segment, further strengthening the company’s position.

Government Support for AI Expansion

China’s commitment to AI was reaffirmed this week as officials pledged support for the large-scale deployment of AI models and next-generation intelligent systems. Analysts view the ongoing National People’s Congress meeting in Beijing as a positive signal, with technological innovation and consumer-driven growth identified as national priorities.

Efficiency and Market Potential of Alibaba’s AI Model

Alibaba’s QwQ-32B model is designed to compete with DeepSeek’s R1 and OpenAI’s o1, offering a more efficient AI reasoning system with 32 billion parameters. As demand grows for AI models that require minimal data and reduced computational power, Alibaba’s latest innovation could prove to be a game-changer. To strengthen its leadership in AI, Alibaba has committed over 380 billion yuan ($52 billion) to AI infrastructure, including data centers, over the next three years.

Any Wall of Worry?

Despite Alibaba’s aggressive AI push, investors remain cautious about whether major tech firms are accurately forecasting future demand for AI services. Questions persist about whether the capital required to develop these technologies will generate the expected returns at all.

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This article originally published on Zacks Investment Research (zacks.com).

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