Alibaba Group Holding Ltd. launched its ₹95,000 crore ($10.2 billion) share placement in Hong Kong on Sunday, marking the largest-ever primary follow-on offering by a Hong Kong-listed company and the third-largest globally this year after offerings by Alphabet and Intel. The company offered 710 million shares at HK$112.70 each, representing an 8.4% discount to Friday's close and a 3.6% discount to the closing price of Alibaba's American depositary receipts. However, investor concerns about the massive AI spending strategy quickly overshadowed the fundraising announcement, with Alibaba shares plunging as much as 10.5% to a one-month low in early Hong Kong trading on Monday. The placement would be Hong Kong's biggest follow-on offering by a company on record, and would also be the city's biggest share sale since 2021, when technology-investment firm Prosus NV sold $14.7 billion in shares of China's Tencent Holdings Ltd. The deal is arranged by China International Capital Corp., HSBC Holdings Plc, Morgan Stanley and UBS Group AG, with Alibaba subject to a 90-day lockup period and the entire net proceeds directed towards strengthening full-stack AI capabilities. The deal is expected to close on 26 August, with the newly issued shares subject to a 90-day lock-up period.
The Alibaba share sale announcement triggered a widespread selloff across Chinese and Hong Kong markets, with technology stocks bearing the brunt of the selling pressure. China's benchmark Shanghai Composite Index declined 0.7% to 3,877.3 points, while the blue-chip CSI 300 Index dropped 1.3%. Technology stocks were particularly affected, with the ChiNext Composite Index falling 3.5% and Shanghai's tech-focused STAR50 Index sliding 3.26%. In Hong Kong, the Hang Seng Index fell 2.1%, and the Hang Seng Tech Index declined 3.8%, with the AI sector index tumbling more than 5%. The CSI AI Index dropped 4.7%, while the CSI Semiconductor Index lost more than 2%. The selling pressure reflects renewed concerns over AI capital expenditure, potential shareholder dilution, and geopolitical uncertainty, leaving technology stocks particularly vulnerable at the start of the week.
Alibaba Group Holding Ltd. reported a 75% decline in net income to ₹10.5 billion ($1.6 billion) for Q2, reflecting the mounting costs of its aggressive AI infrastructure expansion. The company also registered a free-cash outflow of more than $6.6 billion, demonstrating the significant financial impact of its AI investment strategy. Despite the profit decline, Alibaba achieved a 9% jump in revenue to ₹268.95 billion ($7.21 billion), which was in line with analyst estimates and reflected strong demand for computing capacity from its cloud division. The company's adjusted earnings per American Depositary Share of ₹8.52 ($0.12) missed estimates of ₹10.53 ($0.15), while its US shares fell 2.6% in pre-market trading following the results announcement. Alibaba's New York-listed shares fell 8.57% on Friday, while Hong Kong-listed shares declined 2.54%. The share sale announcement came a week after Alibaba reported quarterly earnings showing it had already spent nearly half of its three-year capital expenditure plan.
Alibaba's AI cloud and compute services revenue rose 45% to ₹48.44 billion ($7.21 billion) in the quarter, demonstrating the strong commercialization of its full-stack AI capabilities. The company's AI Cloud and Compute Services segment generated ₹57,000 crore ($48.4 billion) in revenue for the quarter ended June 30, marking its fastest growth in 22 quarters. As businesses deploy AI, demand for cloud computing power needed to train and run AI systems has surged, benefiting China's largest technology companies. The company's capital expenditure rose 75% to ₹80,000 crore ($10.1 billion) in the quarter ended June 30, as it continued to invest in AI infrastructure, proprietary models and applications. Alibaba's capital expenditure had reached ₹2.25 lakh crore ($190 billion) by the end of June, with the company having committed ₹4.5 lakh crore ($380 billion; US$56.4 billion) over three years towards AI infrastructure in February 2025. The company has already spent nearly half of its three-year capex plan, but expects the payback period for AI investments to shorten from 3 years to 2.5 years, citing surging demand.
The company intends to use the proceeds from the share sale to invest in full-stack AI capabilities, including by expanding and enhancing its infrastructure. Alibaba has cemented its status as a global artificial intelligence frontrunner after its flagship Qwen offering became the world's most popular model family, with the Qwen family of large language models having recorded more than 3 billion downloads globally. The Hangzhou-based company is among the biggest spenders on AI among its Chinese rivals, having been hiving off assets and deploying capital toward everything from chips and data centers to large-language model development. Alibaba's T-Head semiconductor unit is expanding its AI chip business, with its Zhenwu chips having served more than 650 customers on Alibaba Cloud. The company's Zhenwu M890 AI processor also entered commercial-scale deployment earlier this month. CEO Eddie Wu Yongming said the company expects its investment in AI computing to break even within three years, with the payback period potentially falling to about two years as gross margins improve. Chief Executive Eddie Wu has also been pruning non-core assets to fund the pivot, recently selling its gaming arm Lingxi Games to Trustar Capital in a deal reportedly worth at least $1.5 billion.
The share sale announcement immediately sparked criticism from prominent investor Michael Burry, the investor made famous in The Big Short. Burry said he "cannot bless" Alibaba's new share issuance in response to the firm's announcement, writing on social media that "This is a new paradigm again for BABA, and its ROIC will continue to fall." According to Burry, he had planned to flip back most of his entire Alibaba position that he had moved to JD.com Inc. "not too long ago" but "no longer" has the intention. Burry added that Alibaba would have to fall by half for him to get interested again. The criticism reflects broader concerns about the company's aggressive AI spending strategy and its impact on return on invested capital. As per Reuters, Charles Wang noted that "In addition, investors generally don't like capex ... though the investment is beneficial in the long term." The view echoes concern in the U.S. where investors increasingly question when massive AI spending will generate returns, with the deal coming a week after Alibaba reported quarterly earnings showing it had already spent nearly half of its three-year capital expenditure plan.
