Alibaba Shares Fall 10% After $10.2 Billion Placement to Fund AI Expansion

Alibaba shares tumbled as much as 10% in Hong Kong trading Monday after the Chinese technology heavyweight set the price for an 80 billion Hong Kong dollar ($10.20 billion) sale of newly issued shares to investors outside the United States.

Alibaba said the net proceeds from the share placement will be directed entirely toward strengthening its full-stack artificial intelligence strategy, with a focus on building out and upgrading its AI infrastructure.

Under the deal, Alibaba will sell 710 million new shares at HK$112.70 each, a discount to Friday’s closing price of HK$123. The stock was recently down 8.4%, trading at HK$112.70.

The fundraising, which is expected to be completed on Wednesday, comes shortly after Alibaba reported a 75% decline in profit for the June quarter, as aggressive spending on artificial intelligence weighed on earnings. The company’s capital expenditure rose 75% to 67.7 billion yuan.

Alibaba’s U.S.-listed shares also moved lower, falling 3.4% in premarket trading.

Vey-Sern Ling, senior equity advisor at UBP, told CNBC last week after Alibaba’s latest earnings report that the company remained well placed to pursue growth opportunities in artificial intelligence.

“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 has been ramping up investment in AI as it seeks to make the technology a key driver of future growth.The company last year announced plans to invest at least 380 billion yuan in cloud computing and AI infrastructure over the next three years. 

Alibaba’s Chinese tech peers have also been ramping up 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.