Alibaba Shares on Downward Path

Alibaba Group Holding Ltd (NYSE:BABA) traded lower Tuesday morning following a report suggesting the U.S. is examining Alibaba's cloud unit for national security risks.

The Reuters report cites "three people briefed on the matter."

Meanwhile, delisting pressures come from both the Chinese government and the U.S. government. Experts have analyzed the possibility of a delisting forced by U.S. government through the Securities and Exchange Commission.

A number of observers say they don’t believe the SEC will delist Alibaba shares because its auditing seems to be conforming to desired standards.

The review aims to understand how Alibaba stores U.S. clients' data, including personal information and intellectual property, as well as whether the Chinese government could gain access to said information.

The report suggests that U.S. regulators could ultimately decide to force Alibaba to put measures in place to reduce the risks posed by its cloud business or even potentially prohibit Americans from using the service.

The Hong Kong listing provides a backup exchange under a worst-case scenario. Institutional investors do not seem worried about delisting.

All key valuation metrics have become cheaper and provide downside protection for the investment. P/E, EV/EBITDA, and EV/FCF have compressed to near all-time lows.

Alibaba operates China's online marketplaces, including Taobao (consumer-to-consumer) and Tmall (business-to-consumer).

BABA shares dumped $4.07, or 3.1%, to $127.50.