• Alibaba shares decline in U.S. and Hong Kong markets as Trump administration probes AI partnership with Apple.
  • Apple executives faced tough questioning from U.S. officials over data privacy and national security concerns.
  • The deal is critical for both companies' AI ambitions in China, but political headwinds threaten its viability.

Growing Scrutiny Over AI Partnership

Alibaba Group's U.S.-listed shares fell 1.9% in premarket trading following reports that the Trump administration is intensifying its scrutiny of the company's AI collaboration with Apple. The deal, which would integrate Alibaba's AI technology into iPhones sold in China, has raised alarms in Washington over potential data-sharing risks and national security implications.

High-ranking White House officials and members of the House Select Committee on China have pressed Apple executives for details about the arrangement, according to people familiar with the matter. Concerns center on whether user data could be accessed by Chinese authorities and whether Apple made concessions to Chinese regulators to advance the partnership. Apple has yet to respond to congressional inquiries, while Alibaba has confirmed the deal's existence but declined to address specific concerns.

Market Reactions and Strategic Stakes

Alibaba's Hong Kong-listed shares dropped 3.8%, making it the biggest drag on the Hang Seng Index, which slipped 0.2%. The sell-off reflects investor worries that U.S. intervention could derail Alibaba's AI expansion plans, already under pressure after disappointing earnings from its cloud unit last quarter.

For Apple, the partnership is a key step toward deploying its Apple Intelligence features in China, where local regulations require foreign tech firms to partner with domestic companies. Losing the deal could force Apple to scramble for alternatives, delaying its AI rollout in its second-largest market.

Political and Regulatory Fallout

The scrutiny has bipartisan support in Congress, with Representative Raja Krishnamoorthi (D-IL) calling Alibaba "a poster child for the Chinese Communist Party's military-civil fusion strategy." The backlash underscores the escalating tensions between the U.S. and China over technology and data governance, complicating efforts by multinationals like Apple to navigate both markets.

If blocked, the deal could set a precedent for future U.S.-China tech collaborations, particularly in AI. Analysts warn that prolonged uncertainty may further weigh on Alibaba's stock and force Apple to rethink its China strategy amid rising geopolitical risks.