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What happened

Shares of Alibaba Group Keeping Restricted (NYSE:BABA) stock that popped on positive analyst commentary yesterday fell back to earth on Wednesday soon after Reuters claimed that a key government ministry is cutting ties with Alibaba.

As of 10:30 a.m. ET, Alibaba stock is down 4.8%.

Image resource: Getty Images.

So what

Yesterday, nearby analyst Chinese CLSA argued that Alibaba could be value 2 times its $123 inventory selling price as it expands its enterprise both of those domestically and internationally, and capitalizes on “the future major expansion pillar” — cloud computing.  

This early morning, however, China’s authorities swept the leg out from underneath that development thesis. The Chinese Ministry of Sector and Information and facts Know-how (MIIT) has suspended “a cooperative partnership” with Alibaba’s Alibaba Cloud subsidiary.  

As Reuters reviews today, Alibaba Cloud unsuccessful to “instantly report vulnerabilities” in its application to the Apache Log4j2 zero-day exploit, which is arguably the internet’s worst protection flaw at any time. Alibaba seemingly did find the flaw in its code, and immediately notified the U.S. Apache Software Foundation, in search of aid. But MIIT only located out about Alibaba’s vulnerability when a 3rd social gathering knowledgeable MIIT of this.  

Now what

As punishment for this failure, MIIT has ceased cooperating with Alibaba Cloud on cybersecurity threats and info sharing — and is not going to even think about partnering up with Alibaba once again for at the very least 6 months.

Now admittedly, Alibaba Cloud is not the biggest aspect of Alibaba’s business enterprise. In point, in accordance to facts from S&P Global Market Intelligence, cloud computing represents much less than 8.5% of Alibaba’s annual earnings, and is at present a cash-losing enterprise for the corporation. That getting stated, cloud computing was a central component of CLSA’s argument for why Alibaba inventory could double yesterday — and presumably a large element of the cause why Alibaba inventory ran bigger on CLSA’s report.

If that cloud company is now in issues, then it helps make whole perception that Alibaba stock must be heading down today.

This report represents the opinion of the author, who could disagree with the “official” suggestion placement of a Motley Idiot quality advisory services. We’re motley! Questioning an investing thesis — even one of our individual — will help us all assume critically about investing and make choices that help us turn out to be smarter, happier, and richer.