U.S.-listed shares of Alibaba Group Holding dipped on Friday following a Morgan Stanley downgrade on concerns over slower turnaround in its key businesses, just hours after rival PDD raced past to become the most valuable Chinese e-commerce firm.

Alibaba's U.S. shares slipped 1.5% to $73.7 in premarket trading, tracking a fresh one-year low. They are down 14% since the company posted in line second-quarter revenue and scrapped plans to spin off its cloud business.

Meanwhile, shares of PDD Holdings have surged following stellar quarterly results from the Temu parent this week. The company closed with a market capitalization of nearly $196 billion on Thursday, surpassing Alibaba's market value of $190.45 billion.

Morgan Stanley analysts downgraded Alibaba to "equal-weight" from "overweight", flagging concerns over softness in its customer management revenue and cloud business due to sagging economic recovery in China.

They also noted uncertainties from the decision to scrap the spin-off of its cloud business.

The brokerage cut its price target on the stock to $90 from $110, the second lowest on Wall Street, as per LSEG data.

Alibaba's U.S. shares, down about 15% so far this year, are set for their third consecutive year of losses.

On the other hand, Morgan Stanley named PDD as its top pick in the sector, saying the company is best placed to navigate the current economic environment with its heavy discounting steps.

"We expect PDD to continue to gain share in the domestic market thanks to its favorable business model amid consumers' behavior shift," Morgan Stanley's Eddy Wang noted, adding that its cross-border e-commerce business, Temu, is not fully valued by the market.

PDD shares were down 1.4% premarket at $145.4 but have surged more than 80% in 2023, handily outperforming its peers.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Sriraj Kalluvila)