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Alibaba Group Holding Limited (NYSE:BABA) and Tencent Holding Ltd (OTC:TCEHY) have gained $66 billion in market value since May, buoyed by optimism over a gradual return to pre-crackdown growth amid government support assurances.
China's tech giants are heading into an earnings season with potentially more decisive growth rates, fueled by the government's twin promises, Bloomberg reports.
Also Read: A Look At Alibaba's AI And Restructuring Initiatives
However, despite assurances, some investors are cautious, given challenges in the Chinese economy and lingering uncertainties.
Also, Chinese policymakers have not provided substantial fiscal or policy support, and consumer spending remains suppressed due to wage outlook and youth unemployment concerns.
Profit margins are thin, and competition from emerging companies like ByteDance Ltd and PDD Holdings Inc (NASDAQ:PDD) poses challenges, even as the Chinese tech stock gauge has risen by 20% since May.
Investors are cautious ahead of Alibaba's quarterly earnings, with some experts indicating that China's economy might make it challenging for internet companies to outgrow it.
Alibaba and Tencent have already struggled with job cuts and increased competition from rivals like Baidu, Inc (NASDAQ:BIDU) and Meituan (OTC:MPNGF).
Moreover, China recently shocked the industry with its rules limiting minors' smartphone usage time.
Alibaba's organizational restructuring reflects a move to create leaders in various businesses, win shareholders, and adapt to new initiatives.
Tencent's focus on gaming will likely face competition from the likes of NetEase, Inc (NASDAQ: NTES), miHoYo, and ByteDance, as the gaming sector shows signs of contraction.
Despite gains in market value, caution persists among investors. Even Goldman Sachs has trimmed Tencent's revenue estimates and target price due to sliding ad sales.
Price Action: BABA shares are trading higher by 2.19% at $96.28 premarket on the last check Wednesday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
