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Stock Markets Soar Into September's End; Duke Disses NextEra Deal, While Alibaba Sees Green in the Cloud

By Dan Caplinger – Sep 30, 2020 at 1:15PM

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Stocks finished a tough month on a strong note.

September hasn't been a great month on Wall Street, but market participants weren't willing to give up without a fight. On Wednesday, major market benchmarks moved sharply higher, taking their cue from a stronger report on private-sector employment than most economists had expected. At around 11:15 a.m. EDT, the Dow Jones Industrial Average (^DJI 1.98%) was up 395 points to 27,848. The S&P 500 (^GSPC 2.18%) gained 39 points to 3,375, and the Nasdaq Composite (^IXIC 2.29%) climbed 144 points to 11,230.

Investors have gotten excited about companies making deals to merge, but this morning, news that Duke Energy (DUK 0.60%) didn't want to do a deal was enough to make the utility stock soar. Meanwhile, Alibaba Group Holding (BABA 3.54%) was higher as its cloud business nears a key milestone.

A short circuit in the mergers and acquisitions process

Shares of Duke Energy climbed 7% in an unusually sharp move for the utility industry. The gains came as investors weighed reports about a possible takeover bid for the North Carolina-based provider of electric and natural gas utility services.

Electrical power lines with tall towers, seen at dawn or dusk.

Image source: Getty Images.

NextEra Energy (NEE 0.69%) apparently tried to buy Duke, according to reports from The Wall Street Journal. However, Duke rejected NextEra's offer. What comes next, though, is what shareholders seem to be excited about, as many anticipate that NextEra will try to make a more attractive offer that will convince Duke to give its approval.

Utility stocks have gotten a lot more attention recently from investors. In a low-rate environment, the high dividend yields that Duke, NextEra, and other utilities offer look even more attractive than usual.

Yet there are also good business reasons for consolidation in the industry. NextEra's strength in renewable power complements Duke's use of power plants with more conventional fuels, making a combination effective. It'll be interesting to see if there's a second round of discussions between Duke and NextEra to try to hammer out a more viable deal.

Raining money from the cloud

Across the Pacific, shares of Alibaba Group were higher by 5%. The Chinese internet giant reported that a key division is on the path to profitability.

Alibaba said at a conference presentation that it expects its cloud services division to make money this year. That would mark the first time that Alibaba has earned a profit from the cloud.

The move follows an immense rise in demand. Alibaba said that the business has seen growth of roughly 60% per year recently. That's a good thing, because Alibaba has invested huge amounts of resources and effort in building out cloud computing capabilities to offer to its clients. The move has helped its e-commerce business, but it also has side benefits that Alibaba is using to generate revenue in other ways.

Cloud computing has been a big part of the most recent tech stock revolution. As China has handled the COVID-19 pandemic more effectively than most parts of the world, Alibaba is in a strong position to take a bigger leadership role in the cloud.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd. The Motley Fool recommends Duke Energy and NextEra Energy. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Duke Energy Corporation Stock Quote
Duke Energy Corporation
DUK
$95.90 (0.60%) $0.57
NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
NEE
$81.75 (0.69%) $0.56
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
$83.30 (3.54%) $2.85
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$30,074.81 (1.98%) $584.83
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,758.67 (2.18%) $80.24
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,062.62 (2.29%) $247.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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