Shares of Alibaba have plunged roughly 11% over the past week, hitting a 16-month low in Hong Kong, as two explosive Washington-driven crises collide with the company's pitch as China's full-stack AI champion.
Anthropic Says Alibaba Ran the Biggest AI Theft Campaign It Has Ever Seen
Anthropic sent a letter to the Senate Banking Committee accusing Alibaba of "brazenly" and "illicitly" extracting its AI capabilities in what it called "the largest known distillation attack on Anthropic to date."
Operators linked to Alibaba's AI lab allegedly ran 28.8 million exchanges through roughly 25,000 fraudulent accounts between April 22 and June 5. Distillation means training a cheaper model by copying a smarter one's answers — effectively cloning capabilities without paying the billions needed to build them. The disclosure is already driving legislative action: Senators Hagerty and Kim are moving to attach an amendment to must-pass defense legislation that would sanction entities conducting such campaigns. If that passes, the risk shifts from a terms-of-service dispute to trade-law enforcement with real financial teeth.
The Pentagon Blacklist Puts U.S. Partnerships at Risk
The Defense Department added Alibaba to its Section 1260H list of Chinese military companies on June 8.
Alibaba filed a federal lawsuit on June 23, arguing the designation had "no basis in fact or law."
Starting June 30, the DoD is barred from contracting directly with any listed entity, and from June 2027, the ban extends to indirect procurement through supply-chain intermediaries.
Alibaba's legal petition warns the label is already causing "significant and irreparable" reputational and financial harm, driving away U.S. partners.
The Earnings Backdrop Is Already Strained
Q4 FY2026 adjusted operating profit fell 84% to $740 million and free cash flow swung to negative $2.51 billion as capital spending hit $3.9 billion.
China's recent June 18 shopping festival saw an estimated 8% drop in core e-commerce revenue year-over-year versus market expectations of flat growth.
Nomura cut its forecast for Alibaba's operating earnings for fiscal year 2027 by 15%.
Congress Could Make This Much Worse
Under the COINS Act, the President must review whether companies on the Pentagon blacklist belong on Treasury's investment-restriction list — a designation that would bar U.S. investors from trading Alibaba's securities entirely. That scenario remains unlikely but is no longer theoretical. With shares now trading between $94.72 and $98.08 against a 37-analyst average price target of $189.75, the market is pricing a policy risk that the consensus has yet to fully absorb.