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By Jack Denton

Alibaba stock was falling on Friday following a recent report that the company could be among those included on a Pentagon watchlist — a reminder of regulatory horrors that haunted the shares for years.

Alibaba's American depositary receipts, or ADRs — essentially the company's U.S.-listed shares — were down 1% in early U.S. trading on Friday.

The decline followed news late Wednesday that the Pentagon told Congress that Alibaba should be added to a list of companies that aid the Chinese military, Bloomberg reported, citing a letter to Congress which it said it viewed.

It is not yet clear if Alibaba and other companies, including Baidu and BYD, have yet been added to the "1260H" Pentagon list of Chinese military-linked companies, the report added.

The story was re-reported in other outlets widely on Thursday, when U.S. markets were closed for the Thanksgiving holiday.

Congress was notified of the Pentagon's conclusions on Oct. 7, a few weeks before breakthrough trade talks between President Donald Trump and his Chinese counterpart Xi Jinping, according to the Bloomberg report.

A 1260H designation would not constitute a ban of sorts for Alibaba and others, but would mark a hit to the company's reputation and could raise general regulatory risks for U.S. investors and prospective clients.

"There's no basis to conclude that Alibaba should be placed on the Section 1260H List," Alibaba said in a statement.

"Alibaba is not a Chinese military company nor part of any military-civil fusion strategy," the company added. "We further note that, because Alibaba does not do business related to U.S. military procurement, being on the Section 1260H List would not affect our ability to conduct business as usual in the United States or anywhere in the world."

A Baidu spokesperson said in a statement that "there is no credible basis for adding Baidu to the 1260H list or any other U.S. government list of restricted companies."

"The suggestion that Baidu has military connections is entirely baseless and no evidence has been produced that would prove otherwise. Our products and services are designed for civilian use. Were the company to be formally listed, we would not hesitate to use all options available to us to have the company removed from the list as many have successfully done in the past," the spokesperson added. "As we are not a supplier to the U.S. military, this potential listing would have no material impact on our business."

Barron's has reached out to BYD for comment. Baidu stock was up 0.6% on Friday. Shares in BYD are not traded in the U.S. on main exchanges but rather over-the-counter markets.

For Alibaba investors, Pentagon watchlist talk is, more than anything else, a reminder of the potentially devastating power of regulatory risks for the stock.

Shares in the company have been on a roll, up 85% this year to the highest levels since 2021 — helped by a meaningful pivot to artificial intelligence — but the stock continues to trade at around half its late-2020 peak.

In late 2020, Alibaba became the face of a regulatory crackdown on the tech sector by Beijing, which was compounded by regulatory pressures in the U.S. The stock fell and then stagnated, seemingly relentlessly, for years, before a rebound began in earnest in late 2024.

Investors will be hoping days of regulatory pain are over — and momentum in the stock would suggest they are. But even reminders of the risks that remain for Chinese tech names may be enough to shake confidence.

Write to Jack Denton at jack.denton@barrons.com

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