PDD Holdings (PDD) stock watch: What triggered the 13% drop and is it a buying opportunity?

PDD Holdings Inc. (NASDAQ: PDD), the Chinese e-commerce conglomerate behind Pinduoduo and global disruptor Temu, faced a severe selloff on May 27, 2025. The stock closed the session at $102.98, down 13.64% in a single day. The fall erased over $24 billion in market capitalization and intensified concerns about the long-term viability of Chinese tech equities in U.S. markets.

Despite PDD’s well-established growth profile and globally competitive cost structure, its valuation multiple and exposure to shifting regulatory climates left it vulnerable to sharp rotation. The drop came amid a wider drawdown in Chinese ADRs, as investors reassessed risk tolerance following a barrage of geopolitical and domestic policy signals from both Beijing and Washington.

This Stock Watch article investigates the drivers behind PDD’s sudden plunge, how Wall Street is reacting, and what investors should consider as they evaluate exposure to one of China’s most internationally scaled e-commerce platforms.

Why Did PDD Shares Tumble Over 13% on May 27?

The catalyst was not tied to earnings or direct corporate disclosures. Instead, PDD’s sharp correction was linked to renewed anxiety over China’s regulatory posture toward platform companies. Over the weekend, local Chinese media outlets reported that the State Administration for Market Regulation (SAMR) was quietly investigating pricing practices on major platforms—including cross-border discounting and algorithmic promotion irregularities.

While not naming Pinduoduo specifically, the report was sufficient to spook global investors already wary of opaque compliance regimes. PDD, as one of the most aggressive players in global e-commerce through its Temu platform, was immediately caught in the crosshairs.

Adding to the tension, a U.S. Congressional committee reintroduced draft legislation aimed at tightening disclosure requirements for Chinese firms listed on U.S. exchanges, reminding markets of the latent delisting threat. Combined, these two signals reignited fears of a tech clampdown echoing the 2021–2022 wave that crushed valuations in Alibaba, Meituan, and Tencent.

Was the Selloff Driven by Institutional Flows?

Yes. On May 27, PDD’s trading volume soared past 50 million shares—more than five times its 10-day average—indicating massive institutional participation. Flow tracking platforms observed sizable block trade exits from hedge funds and large-cap growth portfolios, most of whom had rotated into PDD as a value proxy in Q1 2025.

ETFs with Chinese tech exposure, such as the KraneShares CSI China Internet ETF (KWEB), also saw substantial outflows. With PDD comprising over 8% of that index, algorithmic and passive selling likely added to the pressure.

Options activity reflected bearish sentiment: open interest on June $100 puts jumped 68% in a single session, and implied volatility spiked to a 4-month high. Traders are pricing in continued turbulence, potentially tied to both macro data from China and further regulatory interpretations.

What Are PDD’s Financials and Valuation Post-Selloff?

PDD’s fundamentals remain strong by most metrics. Its FY2024 revenue exceeded $35 billion, and net income grew over 45% year-on-year, aided by its high-margin domestic advertising business and rapidly scaling Temu operations in North America and Europe.

Even after the 13% drop, the stock trades at a forward P/E ratio of just 11.3—a steep discount to global peers like Amazon (P/E ~38), MercadoLibre (~67), or Sea Ltd (~24). On a price-to-sales basis, it’s below 3x, despite gross margin expansion and strong free cash flow.

Yet for all its financial strength, the market continues to assign a geopolitical risk discount. Analysts note that investor enthusiasm remains muted due to three core concerns: unpredictable regulation, supply chain localization mandates, and possible sanctions spillover from the Taiwan issue.

What Role Does Temu Play in PDD’s Global Strategy?

Temu, launched in 2022, has rapidly grown into one of the most downloaded apps in the U.S. and Canada. The platform’s aggressive “shop like a billionaire” marketing, ultra-low prices, and vertically integrated fulfillment model have earned it both praise and scrutiny. Analysts estimate that Temu accounted for 28–30% of PDD’s topline growth in FY2024, but it remains a low-margin operation, heavily subsidized to win market share.

Critics argue that Temu’s international expansion burns cash and may be unsustainable long-term. Yet bulls point out that PDD has successfully monetized low-margin traffic in China before via layered ecosystem ads, and could replicate the model in global markets over time.

Recent rumors suggest Temu is exploring warehousing partnerships in India and the Middle East, hinting at further globalization. However, that ambition could heighten compliance risk in countries wary of data transfer, especially after the U.S. Department of Homeland Security flagged several Chinese apps for privacy reviews in early May.

Is This a Correction or a Long-Term Rerating?

Analysts are split. Some see the move as a technical reset following PDD’s outperformance in early 2025. Others interpret the plunge as a signal that investor trust in Chinese tech ADRs remains structurally impaired, regardless of earnings power.

Sentiment data backs the cautious view. Retail investor mentions of “PDD stock” declined by 33% on Stocktwits and Reddit’s r/stocks in the 48 hours following the drop. Institutional buy-side notes compiled by FactSet show multiple funds moving to “underweight” on Chinese ADRs broadly, not just PDD. This suggests a portfolio-wide derisking trend, rather than company-specific rejection.

Still, none of the major banks have issued outright downgrades on PDD. Instead, the consensus is shifting from “buy” to “hold” as traders await clarity on Beijing’s regulatory cadence and potential retaliatory measures in the U.S.-China policy war.

How Are Chinese Tech Stocks Performing More Broadly?

PDD’s decline was not isolated. Alibaba (BABA), JD.com (JD), and Baidu (BIDU) all saw 4–8% drops on May 27. While PDD’s fall was most severe, the across-the-board drawdown underscores systemic pressure on the sector.

Investors had hoped that the end of China’s “common prosperity” campaign and reopening in 2024 would reflate tech valuations. Instead, mixed economic indicators—weak exports, deflation signals, and underwhelming consumer sentiment—are undermining the tech-led recovery thesis.

Moreover, China’s shift toward “state-guided” AI investment and local cloud subsidies may be diverting capital away from market-driven e-commerce and platform companies. This sector rotation within China’s own economic planning creates a domestic headwind for PDD and its peers.

What Is the Near-Term Outlook for PDD Stock?

Technically, PDD broke through its 100-day and 200-day moving averages on heavy volume, a clear bearish signal for momentum traders. The stock is now testing a key support level around $100, with the next downside target at $94 if volume remains elevated.

However, from a valuation standpoint, the stock remains inexpensive relative to earnings power. If geopolitical noise fades and no material penalties emerge, analysts believe PDD could rebound toward the $115–$120 range by Q3, especially if Temu hits profitability benchmarks or the Chinese government outlines pro-growth policies for tech exports.

Investors focused on long-term value may view current levels as attractive, particularly given PDD’s high cash position and expanding footprint in non-cyclical international markets. But those wary of regulatory opacity and headline risk may prefer to wait for confirmation that the current selloff is over.