1 week ago
Alibaba Shares Plunge After Discounted $10.2 Billion AI Fundraise
Alibaba is raising about $10.2 billion by selling new shares.
The company plans to use the money to build artificial-intelligence tools and infrastructure.
The new shares were sold for less than Alibaba’s previous closing price.
This means existing shareholders will own a slightly smaller part of the company.
Many investors worried that Alibaba is spending a lot before its AI projects produce enough money.
Those concerns caused Alibaba’s Hong Kong shares to fall sharply.
Alibaba said strong demand for AI services has shortened its expected investment payback period to two and a half years.
The company has already used nearly half of a 380 billion yuan, three-year spending plan.
Its latest quarterly profit fell 75%, mainly because of higher AI-related spending.
Alibaba finalized an HK$80 billion share placement at HK$112.70 per share, an 8.4% discount to Friday’s close.
The proceeds will fund artificial-intelligence development, including chips, computing infrastructure and large language models.
Alibaba shares fell as much as 10% to HK$110.10 before ending morning trading 9.8% lower at HK$111.
Investors are concerned about shareholder dilution, heavy capital spending and the timing of returns from Alibaba’s AI investments.
Alibaba has committed nearly half of its 380 billion yuan three-year capital expenditure plan, while quarterly net profit fell 75% year over year.
- Who
- Alibaba, its shareholders and investors.
- What
- Alibaba finalized a $10.2 billion share placement to fund AI development and related infrastructure.
- Where
- The share-price reaction occurred in Hong Kong; Alibaba also expanded its Alibaba Cloud network in South Korea.
- When
- The placement was finalized on Sunday, and Alibaba shares fell during Monday trading; the company reported its quarterly earnings the previous week.
- Why
- Alibaba is increasing AI investment amid rising demand, competition and Sino-U.S. technology rivalry, while investors are questioning dilution, spending and future returns.
Investor Concerns
Alibaba’s AI Investment Case
Dilution and pricing
Investor Concerns
Investors said the discounted share sale reduces existing shareholders’ interests and contributed to the negative short-term market reaction.
Alibaba’s AI Investment Case
The placement gives Alibaba HK$80 billion to finance its AI expansion and related infrastructure.
Spending and returns
Investor Concerns
Investors are questioning whether Alibaba’s large AI spending will generate sufficient returns and are generally wary of heavy capital expenditure.
Alibaba’s AI Investment Case
Alibaba said surging demand for AI services allowed it to bring forward its projected investment payback period to two and a half years from three years.
Near-term earnings
Investor Concerns
Alibaba’s quarterly net profit fell 75% year over year, primarily because of higher AI-related spending.
Alibaba’s AI Investment Case
Alibaba is continuing to expand its AI infrastructure, including a third South Korean data center and a network covering 104 availability zones across 30 regions.
Key facts
- Fundraising size
- HK$80 billion, or approximately $10.2 billion
- Placement price
- HK$112.70 per share
- Placement discount
- 8.4% below Alibaba’s Friday closing price
- Share-price reaction
- Shares fell as much as 10% to HK$110.10 and ended morning trading 9.8% lower at HK$111
- Planned use
- AI chips, computing infrastructure, large language models and related development
- Capital expenditure plan
- 380 billion yuan over three years; nearly half had already been spent
- Quarterly profit
- Net profit fell 75% from a year earlier, primarily because of AI-related spending
- Investor demand
- The order book drew about $28 billion, according to people familiar with the deal
Quotes
Charles Wang
Chairman of Shenzhen Dragon Pacific Capital Management
“In addition, investors generally don't like capex ... though the investment is beneficial in the long term.”
livemint.com
“It's negative news in the short-term ... as the share placement dilutes shareholders' interest,”
livemint.com
Sources
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