- Placement price of HK$112.70 is 8.4% discount from Friday close
- Order book draws robust demand of $28 billion, sources say
- Investors see AI spending as necessary but fret about execution risks
SHANGHAI, Aug 24 (Reuters) - China's Alibaba shares slumped in Monday Hong Kong trade after it launched a $10.2 billion share sale at a sharp discount to fund its AI ambitions, with investors focused on stock dilution and execution risks.
The e-commerce and cloud computing giant said it would be offering HK$80 billion ($10.2 billion) in new shares at HK$112.70 apiece — an 8.4% discount to its Friday close — to fund development of chips, AI infrastructure and models.
Its Hong Kong shares were ended morning trade down 9.8% at HK$111.00.
"Alibaba's DNA is in e-commerce, not advanced tech," said Yang Tingwu, vice general manager of asset manager Tongheng Investment.
"No matter how much it invests in AI hardware, it will likely be outmaneuvered by competitors in tech innovation."
The offering has, nevertheless, seen strong demand, receiving orders totalling $28 billion with $6 billion from long-only and sovereign investors, according to three sources with knowledge of the funding who declined to be identified as the details were confidential.
About 40% of the book will be allocated to long-only and sovereign investors, two sources said. Investors include major sovereign wealth funds in Europe, Asia and the Middle East, the sources added.
Alibaba did not immediately respond to a request for comment.
The deal is the largest-ever primary follow-on offering by a Hong Kong-listed company and the third-largest globally this year after offerings of nearly $85 billion from Alphabet and $20 billion from Intel.
"Alibaba's placement — landing alongside massive capital raises by Alphabet and Intel in the U.S. — proves that American and Chinese tech giants are operating off the exact same strategic playbook," said Winston Ma, an adjunct professor at NYU School of Law and former head of North America for sovereign wealth fund China Investment Corp.
"The global sovereign investors aren't blind to U.S.-China tech friction — they are compartmentalizing it," Ma said, adding that they were more comfortable with compliance issues when investing in Chinese commercial cloud and open-weight AI plays over restricted semiconductor hardware.
The biggest Chinese AI names are, however, investing only a fraction of what their U.S. counterparts are doing.
Capital Group, one of the world's largest active investment managers, estimates that AI-related capital expenditure by the biggest U.S. hyperscalers — Microsoft, Amazon, Alphabet, Meta and Oracle — reached $791 billion as of July 31. That compares with $118 billion for China's ByteDance, Alibaba, Tencent and Baidu .
While Chinese firms have been on the back foot compared to U.S. rivals, particularly due to years of U.S. restrictions on access to the most advanced Nvidia chips, those constraints have pushed them to develop more efficient models and infrastructure that require less computing power and capital.
The share placement comes a week after Alibaba reported quarterly net profit that fell 75% from a year earlier due primarily to AI-related spending.
It said it had committed nearly half of its three-year capital expenditure of 380 billion yuan ($56.5 billion) and brought forward its projected payback on AI investment to two and a half years from three due to surging demand for AI services.
($1 = 6.7229 Chinese yuan)
Reporting by Casey Hall and Yiming Shen in Shanghai and Kane Wu in Hong Kong; Additional reporting by Sherin Sunny; Editing by Christopher Cushing and Edwina Gibbs
Source: Reuters