Alibaba shares plunge 11% after $10.2 billion share placement to fund AI expansion

Alibaba shares plunged as much as 11% on Monday, 24 August, after the Chinese technology major announced an HK$80 billion ($10.2 billion) share placement to raise funds for its artificial intelligence expansion. The company plans to issue 710 million new shares at HK$112.70 each, below Friday’s closing price of HK$123. The stock fell as much as 10% to HK$110.10 during early trading.

Alibaba said the entire net proceeds from the placement will be directed towards strengthening its full-stack AI capabilities, including expanding and upgrading its AI infrastructure. The deal is expected to close on 26 August, with the newly issued shares subject to a 90-day lock-up period.

The fundraising follows a sharp decline in Alibaba’s profitability. The company reported a 75% year-on-year fall in June-quarter net profit, as rising spending on AI and computing infrastructure weighed on earnings. Its capital expenditure also increased significantly during the quarter.

The latest share sale highlights Alibaba’s aggressive investment strategy as it seeks to strengthen its position in the increasingly competitive AI race, while investors remain concerned about share dilution, elevated capital expenditure and the longer timeline for AI investments to generate returns.

Alibaba well placed to tap AI growth

According to CNBC, Vey-Sern Ling, senior equity advisor at UBP, said Alibaba is well-positioned to capitalise on the growing AI opportunity, supported by its strong cloud computing business and AI capabilities. However, he cautioned that the company could see weaker profits in the near term as capital expenditure rises to support its AI ambitions.

Alibaba has been stepping up its artificial intelligence investments as it seeks to make the technology a key driver of future growth. The company announced plans last year to invest at least 380 billion yuan in cloud computing and AI infrastructure over the next three years, according to CNBC.

Meanwhile, Alibaba’s Chinese technology peers are also ramping up AI spending. Tencent’s capital expenditure rose 65% sequentially to 52.8 billion yuan in the June quarter, as the company continued investing in computing infrastructure to support and monetise its AI models, CNBC reported.

Alibaba shares - Technical views

Mahesh M. Ojha, Vice President of Research and Business Development at Kantilal Chhaganlal Securities Pvt Ltd, said Alibaba has immediate support at 114, followed by a stronger support level at 108. He advised maintaining a stop-loss below 108. On the upside, the stock faces resistance at 124, 132 and 138.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.