Alibaba's $10.2B Hong Kong share sale for AI infrastructure is the year's third-largest follow-on. Cloud AI revenue surged 45% in Q2, but net profit fell 75%.
Alibaba Group on Sunday launched a ₹95,000 crore ($10.2 billion) share sale in Hong Kong, with proceeds earmarked for artificial intelligence infrastructure. The placement is the world's third-largest primary follow-on offering this year, after offerings from Alphabet and Intel, according to data compiled by Bloomberg.
The Chinese e-commerce and cloud company will issue 710 million shares at HK$112.70 each, a 3.6% discount to its latest close, a term sheet reviewed by Reuters showed. Strong investor demand prompted Alibaba to increase the offering to HK$80 billion, the South China Morning Post reported, citing officials in the know.
Alibaba said the funds would go toward extending the company's global AI leadership and investing in full-stack AI capabilities, including AI infrastructure and large language models. The deal is the company's first new share placement since its Hong Kong listing in 2019.
Alibaba's AI Infrastructure Bet
The fundraising comes as Alibaba ramps up spending on AI computing and cloud services. Its cloud and AI business revenue jumped 45% year-on-year in the April-June quarter, while capital expenditure surged 75% to ₹80,000 crore ($10 billion). Chief executive Eddie Wu Yongming said the company expects its AI computing investment to break even within three years, with the payback period potentially falling to about two years as gross margins improve.
Alibaba had spent ₹2.25 lakh crore ($27 billion) in capital expenditure through June. In February, it committed ₹4.5 lakh crore ($56.4 billion) over three years toward AI infrastructure. Its Qwen family of large language models has recorded more than 3 billion downloads globally, and its T-Head semiconductor unit's Zhenwu chips have served more than 650 customers on Alibaba Cloud.
The company's AI Cloud and Compute Services segment generated ₹57,000 crore ($6.9 billion) in revenue for the quarter ended June 30, its fastest growth in 22 quarters. “We expect supply to continue ramping up in the second half of the year to meet strong customer demand,” Wu said.
Alibaba's New York-listed shares fell 8.57% on Friday, while its Hong Kong-listed shares declined 2.54% on the same day. The share sale adds to a heavy capital expenditure cycle. In the June quarter, Tencent's AI capex rose 176% year-on-year to ₹62,000 crore ($7.5 billion).
US technology giants are spending on a far larger scale. Amazon, Microsoft, Alphabet and Meta are collectively expected to spend about ₹62 lakh crore ($700 billion) on capital expenditure this year, according to estimates.
Alibaba's Alpha Score of 49/100 reflects the mixed signal from its aggressive AI spending and a 75% net profit plunge in the latest quarter. Intel, which also raised capital this year, faces its own margin pressures as it competes in AI chips. The global AI capex race shows no sign of slowing, but the payoff timeline remains uncertain.
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