Alibaba Group shares slid as much as 10 percent in Hong Kong trading Monday after the company priced a HK$80 billion ($10.21 billion) share placement to fund its artificial-intelligence buildout, the largest primary follow-on share sale ever completed by a Hong Kong-listed company. The offering, which closed Friday and began trading Monday, sold 710 million new shares at HK$112.70 apiece — an 8.4 percent discount to Friday's closing price — and drew what people close to the deal described as strong demand from sovereign wealth funds and other institutional investors.
Alibaba said it intends to direct all of the net proceeds into what it calls "full stack" AI capabilities: custom chips, data-center infrastructure, and the development and deployment of its own AI models. The raise ranks as the third-largest primary share sale globally this year, behind only offerings from Alphabet and Intel, and comes just a week after Alibaba disclosed in quarterly results that it had already committed nearly half of its three-year, roughly $53 billion capital-spending plan.
Investors Balk at the Dilution
The stock's decline reflects a familiar tension in the AI buildout: Alibaba's own executives argue the spending is essential to compete for cloud and AI customers against Amazon, Microsoft and Chinese rivals, but issuing new equity to pay for it dilutes existing shareholders immediately, with the payoff arriving later, if at all. Alibaba's fiscal first-quarter net profit had already fallen 75 percent year over year, a decline the company attributed largely to the pace of its AI investment, even as it said the expected payback period on that spending had shortened to roughly 2.5 years from three, citing stronger-than-expected demand for its cloud and AI services.
It's negative news in the short term ... as the share placement dilutes shareholders' interest.
Charles Wang, chairman, Shenzhen Dragon Pacific Capital Management
Chief Executive Eddie Wu has framed the spending as unavoidable, telling investors on last week's earnings call that capturing AI-driven growth requires the capital outlay up front. Monday's share-price reaction suggests the market is willing to fund that bet, but only at a discount, and the sharp move down mirrors the pattern set by other Chinese and Korean tech companies this year that have tapped equity markets to keep pace with Western rivals' AI capital spending.
