Why Alibaba Stock and Other Chinese Tech Shares Are Falling

Alibaba’s American depositary receipts are up 105% this year through Thursday. (Alain Jocard/AFP via Getty Images)

Key Points

• Chinese technology stocks, including Alibaba and Baidu, fell as concerns about an AI bubble grew following warnings from financial institutions.
• Alibaba’s American depositary receipts were 2.2% lower in the premarket after a 4% fall, despite a 104% year-to-date jump driven by AI optimism.
• China’s increased import restrictions on U.S. AI chips and expanded export curbs on rare earth minerals raise trade war concerns.

Alibaba, Baidu, and other Chinese technology stocks fell Friday as some of the air came out of the artificial-intelligence rally.

Concerns that an AI bubble is forming have mounted in recent days, following warnings from the Bank of England and the International Monetary Fund that valuations appear stretched. U.S. stocks closed lower Thursday and Hong Kong stocks appeared to take their cue from Wall Street Friday.

Alibaba slumped 4.6% in Hong Kong trading, while its American depositary receipts (ADRs) were down 1.3% in Friday morning trading after a 4% fall on Thursday. The e-commerce giant’s ADRs have jumped 105% this year through Thursday, largely thanks to optimism over its AI ambitions.

Tech peer JD.com had advanced 0.1%, while Baidu was off 1.5%. The selling also spread to electric-vehicle makers NIO and XPeng, which were down 3.3% and 2.5%, respectively.

The Nasdaq Golden Dragon China Index, which tracks U.S.-listed companies that do the majority of their business in China, declined 2% Thursday. It’s on pace for its first monthly loss since April, according to FactSet data.

China has stepped up the enforcement of import restrictions on U.S. chips, including Nvidia AI processors, at major ports, the Financial Times reported Friday. The crackdown could affect the country’s AI boom.

Separately, Beijing moved to expand export restrictions on its rare earth supply chain Thursday—minerals that are key for AI development—ahead of a potential meeting between China’s leader Xi Jinping and U.S. President Donald Trump.

“The China rare earth curbs expose potential trade war concerns with the U.S.-China truce expiring on Nov. 10,” Saxo Markets strategist Neil Wilson said.

Write to Callum Keown at callum.keown@dowjones.com