By Dhirendra Tripathi
Investing.com – Alibaba ADRs (NYSE:BABA) fell 4.4% in Tuesday’s premarket trading on a Reuters report that the Biden administration is investigating the company’s Cloud business for carrying potential risk to U.S. national security.
The focus of the probe is on how the company stores U.S. clients' data, including personal information and intellectual property, and whether the Chinese government could gain access to it, according to the Reuters report. The potential for Beijing to disrupt access by U.S. users to their information stored on Alibaba Cloud is a worry too, the report said.
Gartner (NYSE:IT) estimates Alibaba's U.S. Cloud business revenue to be less than $50 million but the operation has attracted increasing focus from the Chinese internet giant owing to its potential. Alibaba’s Cloud business fetched $9.2 billion in revenue in 2020, contributing a small 8% overall but growing at 50%. It competes in the U.S. with Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and others in the Cloud-hosting space.
Alibaba had in its 2021 annual report flagged concerns surrounding its U.S. operations. “U.S. entities and individuals with whom we have existing contractual or other relationships may be prohibited from continuing to do business with us, including performing their obligations under agreements involving our supply chain, logistics, software development, Cloud services and other products and services,” it warned.
Relations between the world’s two largest economies have been strained for a few years now. On its part, China, wary of rules its listed companies have to follow to comply with the SEC and other regulators in the U.S., has increased its own oversight of data handling practices of its internet giants.