Alibaba shares fell by 10% following a $10.2 billion share placement aimed at financing its AI expansion
Alibaba shares have dropped significantly following the company’s decision to raise $10.2 billion aimed at enhancing its AI infrastructure, even as it faces increasing costs and declining profits.
Alibaba shares fell by as much as 10 percent in Hong Kong on Monday following the announcement of a HK$80 billion ($10.2 billion) placement of newly issued shares to non-US investors by the Chinese technology giant.
The company announced that it would allocate all net proceeds from the share sale to bolster its full-stack artificial intelligence capabilities, which includes expanding and enhancing its AI infrastructure.
Alibaba plans to issue 710 million new shares at HK$112.70 each, which reflects a discount compared to Friday’s closing price of HK$123.
The stock was last trading 8.4 percent lower at HK$112.70, with the placement anticipated to close on Wednesday.
The fundraising follows Alibaba’s report of a 75 percent drop in profit for the June quarter, attributed to significant investments in artificial intelligence impacting its financial results.
Capital expenditure increased by 75 percent to 67.7 billion yuan during the quarter, indicating the company’s heightened investment in AI and computing infrastructure.
Alibaba has been ramping up its investment in AI, aiming to position the technology as a key catalyst for future growth.
The company announced last year its intention to invest a minimum of 380 billion yuan in cloud computing and AI infrastructure over the next three years.
Following Alibaba’s recent earnings report, Vey-Sern Ling, senior equity adviser at UBP, remarked that the company is strategically positioned to capitalize on growth in artificial intelligence, thanks to its cloud computing operations and AI models.
“I believe Alibaba is distinctly positioned to pursue that growth, considering they possess a cloud computing division and a robust AI model,” he stated.
Ling noted that Alibaba’s profits may face a decline in the near future due to the ongoing increase in capital expenditure.
Alibaba’s heightened investment in AI reflects a wider trend of financial commitment among Chinese tech firms.
Tencent’s capital expenditure increased by 65 percent from the previous quarter, reaching 52.8 billion yuan in the June quarter, as the company persisted in its investments in computing infrastructure to commercialize its AI models.
