Alibaba Shares Slide After $10.2 Billion AI Share Sale at Sharp Discount
Alibaba Shares Slide After $10.2 Billion AI Share Sale at Sharp Discount
Alibaba shares fell sharply in Hong Kong on Monday after the Chinese technology group priced a HK$80 billion ($10.21 billion) share placement at a sizeable discount to the market price, with the proceeds earmarked for artificial intelligence investment.
Alibaba is issuing 710 million new ordinary shares at HK$112.70 each, an 8.4% discount to Friday’s Hong Kong closing price of HK$123. The stock fell as much as around 10% during Monday’s session and was down 9.1% in the latest Reuters update.
The deal is the largest primary follow-on share offering by a Hong Kong-listed company, according to Reuters. Investor demand was strong, with orders reaching about $28 billion, nearly three times the amount Alibaba is raising.
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Alibaba’s AI Funding Comes at a Cost
The placement gives Alibaba another HK$80 billion to deploy into AI capabilities and related infrastructure. But the discount and new shares have created an immediate cost for existing shareholders.
The 710 million shares amount to roughly 3.7% of Alibaba’s existing share base, according to market reports. The new shares therefore increase the company’s outstanding equity while being sold below the previous market price.
That dilution is arriving at a time when Alibaba is already spending heavily on AI.
In the quarter ended June 30, Alibaba’s capital expenditure rose 75% year over year to 67.68 billion yuan. Net income fell 76% to 10.54 billion yuan, while revenue increased 9% to 268.95 billion yuan.
The numbers show the immediate trade-off. Alibaba’s business is still growing, but the cost of building out its AI infrastructure has risen much faster than overall revenue.
AI Cloud Growth Gives Alibaba a Reason to Keep Spending
There is also evidence that the spending is supporting a growing business.
Revenue from Alibaba’s AI Cloud and Compute Services rose 45% to 48.44 billion yuan in the June quarter. Alibaba has also said it has already spent about half of its planned 380 billion yuan ($56.4 billion) investment in AI and cloud infrastructure.
The company now expects its AI investment to reach break-even in roughly 2.5 to three years, according to Reuters reporting.
That timeline will be important for shareholders because the latest placement is not a one-off investment. It adds fresh capital to a spending programme that is already putting pressure on earnings and cash flow.
Investors Have Backed the Deal, but Sold the Stock
The heavy oversubscription shows that institutional investors were willing to finance Alibaba’s AI push. Reuters reported that around 40% of the orders came from long-only investors and sovereign wealth funds, including Qatar Investment Authority and Norway’s Norges Bank.
The stock’s reaction tells a different story.
Investors may be comfortable with Alibaba’s long-term AI opportunity while still questioning the price of funding it today. A discounted equity issue means existing shareholders take the dilution immediately, while the financial benefits of the additional AI capacity remain several years away.
Sources: Reuters | Alibaba Group
