Alibaba (NYSE:BABA) just took a hitfalling 4.8% in Hong Kongafter fresh headlines suggested the White House is pushing back on Apple's plan to bring Alibaba's AI to iPhones in China. The potential deal, once seen as a win-win, now faces political friction that could stall or even scrap the rollout. Apple (AAPL), Alibaba, and the U.S. government haven't commented, but behind the scenes, the pressure appears real enough to spook investors already on edge after Alibaba's earnings miss last week.

Warning! GuruFocus has detected 3 Warning Signs with BABA.

The timing couldn't be worse for Apple either. China is its second-largest market, and its sales there dipped 2.3% last quarter as competition from Huawei and Xiaomi heats up. Analysts warn that without a homegrown AI partner, Apple risks losing its edge in a market where AI-driven features are fast becoming table stakes. Apple has much more to lose than Alibaba if it walks away from the AI deal, noted Vey-Sern Ling at Union Bancaire Privee. A delay or breakdown could force Apple to scramble for alternatives, while its Chinese rivals double down.

For Alibaba, the setback throws a wrench into its comeback story. Investors had rallied behind the stock earlier this year on hopes that its AI momentumespecially with a high-profile partner like Applecould reignite growth. But with Washington's glare intensifying, that narrative could be slipping. Bloomberg Intelligence warns the uncertainty may hold back Alibaba's cloud investment and R&D in the short term. For now, one thing's becoming clearer: this isn't just a tech dealit's another geopolitical battleground.

This article first appeared on GuruFocus.

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