Alibaba is making a bold pivot toward artificial intelligence, calling on investors to back an ambitious investment plan. However, the initial market response was harsh, with the Chinese giant's stock plunging up to 10% in Hong Kong.
Capital Raising and Share Dilution
The company announced it is raising approximately $10.2 billion (HK$80 billion) through the issuance of 710 million new shares, offered to investors outside the US. The offering price was set at HK$112.70, representing a significant discount compared to Friday's closing price of HK$123.
This move sparked concern among existing shareholders due to the impending dilution of their holdings, occurring at a time when profitability is already under strain.
The High Cost of AI Transformation
The proceeds from the issuance are earmarked exclusively for strengthening Alibaba's cloud infrastructure, data centers, and AI models. This strategic shift from e-commerce to providing technological infrastructure comes at a high price:
- Profits for the quarter ending in June dropped by 75%.
- Capital expenditures (CAPEX) surged by 75%, reaching 67.7 billion yuan.
- The company has committed to investing 380 billion yuan over a three-year period.
Meanwhile, competition in China is intensifying, with Tencent also increasing its spending by 65%, confirming that the AI race is entering an extremely expensive phase.
