Alibaba stock slumps in Hong Kong after $10.2 billion share placement to fund AI

Alibaba's Hong Kong-listed shares dropped sharply on Monday following a $10.2 billion share placement aimed at funding AI-related development. Investors expressed concern over the impact of the dilution on existing shareholders, with the shares falling as much as 10% to HK$110.10 in early trade.

Alibaba has announced that the share placement, finalized at HK$112.70 per share, is intended to address its significant AI spending amid increasing competition and the escalating Sino-U.S. tech rivalry. The company's shares declined as much as 10% in the early Hong Kong trading session.

The move has been deemed negative in the short term due to the dilution of shareholders' interest, according to Charles Wang, chairman of Shenzhen Dragon Pacific Capital Management. However, investors generally do not favor capital expenditure, even though the investment is expected to yield benefits in the long run.

The share placement is the largest-ever primary follow-on offering by a Hong Kong-listed company and ranks as the third-largest globally this year, surpassed only by offerings by Alphabet and Intel. Alibaba plans to utilize the proceeds to bolster AI development, including expanding its related infrastructure.

This announcement came a week after Alibaba disclosed its fourth-quarter earnings, revealing that it had already spent nearly half of its three-year capital expenditure plan. Alibaba had brought forward its projected payback on AI investment to approximately two and a half years from three due to the surging demand for AI services.

During the same quarter, the company's quarterly net profit declined by 75% from a year earlier, primarily attributed to its AI-related spending. Earlier this week, Alibaba Cloud, Alibaba's digital technology and AI division, launched its third data center in South Korea, bringing its network to 104 availability zones across 30 regions. This expansion was part of Alibaba's pledge to invest 380 billion yuan ($56.54 billion) over the next three years in AI infrastructure.