Alibaba Launches Record $10.2 Billion Share Placement to Fund AI Expansion

Chinese tech giant Alibaba has launched a HK$80 billion ($10.2 billion) share placement in Hong Kong, aiming to fund its global artificial intelligence ambitions. The company said the placement is being undertaken to extend its global AI leadership, with all net proceeds earmarked for its "full stack AI capabilities," including expanding and enhancing its AI infrastructure.

The deal, announced on Sunday, involves the issuance of 710 million new shares at HK$112.70 apiece, a 3.6% discount to the stock's most recent closing price. According to a term sheet reviewed by Reuters, the placement is expected to close on Wednesday. The offering was met with strong demand from investors, including sovereign wealth funds, and Alibaba increased the size of the offering after the deal was oversubscribed, according to two people familiar with the matter. Morgan Stanley, HSBC, UBS and CICC are serving as joint bookrunners.

The placement is the largest-ever primary follow-on offering by a Hong Kong-listed company, and ranks as the world's third-largest primary follow-on share sale this year, after offerings from Alphabet and Intel. The offering was not registered under US securities laws, meaning American investors were not eligible to participate.

Market Reaction and Financial Context

Alibaba's shares plunged as much as 10% in Hong Kong on Monday following the placement, with shares last trading 8.4% lower at HK$112.7. The market reaction comes just days after the company reported a 75% drop in net profit for the June quarter, as heavy AI spending weighed on its results. Capital expenditure jumped 75% to 67.7 billion yuan in the quarter.

The company has been ramping up investment in AI, announcing last year plans to invest at least 380 billion yuan in cloud computing and AI infrastructure over the next three years. In its most recent earnings report, Alibaba said it had already spent nearly half of its three-year capex plan, and that the expected payback on AI-related investments was on track to fall to 2.5 years from three years, driven by surging demand.

"In order to be able to capture that future growth, we first need to make these capex investments to build out the necessary compute capacity," CEO Eddie Wu said on an earnings call.

AI Investment Race Intensifies

Alibaba's peers are also increasing their AI spending. Tencent's capital expenditure rose 65% from the previous quarter to 52.8 billion yuan in the June quarter, as the company continued to invest in computing infrastructure to monetize its AI models.

The global AI boom has fueled staggering capital outlays on infrastructure and data centers since 2022. The four major US hyperscalers – Microsoft, Amazon, Alphabet and Meta – together are expected to spend roughly $725 billion in capital expenditures in 2026.

Alibaba, known for its open-source "Qwen" AI models, reported nearly 269 billion yuan ($40 billion) in revenue in its most recent quarter, a nine percent year-on-year increase, boosted by the global AI frenzy driving demand for its products.

Analyst Perspective

Vey-Sern Ling, senior equity advisor at UBP, said Alibaba is well positioned to pursue AI growth. "I think Alibaba clearly is well positioned to chase that growth, given that they have a cloud computing arm, they have a very strong AI model," he said, adding that profits might weaken in the near term while capex might rise.

Alibaba did not disclose additional details on its investment plans by category, and did not comment beyond its regulatory disclosure.