Alibaba Launches Record $10 Billion Share Sale to Enter the AI Race

Alibaba Group Holding (BABA) is set to raise approximately $10 billion through a share sale, aiming to enhance its full-stack AI capabilities. The Chinese company will allocate 100% of the net proceeds towards AI development. Alibaba is selling 710 million ordinary shares at HK$112.70 each, which is a 3.6% discount to Friday's closing price.

This deal, if finalized, would be the largest primary follow-on offering by a Hong Kong-listed company and the third-largest globally this year. Only Alphabet's $80 billion raise in June and Intel's $15 billion sale in August have surpassed it. The full-stack AI category encompasses chips, infrastructure, and the development and deployment of AI models.

The offering has attracted significant interest from investors, including sovereign wealth funds, with demand exceeding the initial sale size. Morgan Stanley, HSBC, UBS, and CICC are jointly leading the transaction. This move comes amid Alibaba's heavy investment in AI, with quarterly capital spending reaching nearly $10 billion.

However, the company's net profit declined by 75% to 10.5 billion yuan (1.6 billion) in the June quarter, and its free cash outflow amounted to $6.6 billion. Alibaba has already spent nearly half of its three-year capex plan, but expects AI investments to yield returns within 2.5 years, down from 3 years, due to rising demand.

Chief Executive Eddie Wu is also divesting non-core assets to fund this AI pivot. Recently, Alibaba sold its gaming arm, Lingxi Games, to Trustar Capital in a deal worth at least $1.5 billion. The company's flagship Qwen AI model lineup has become the world's most popular this year, according to Bloomberg. The success of this $10 billion capital infusion in maintaining Alibaba's competitive edge against US rivals remains to be seen.