Alibaba Is Betting Another $10 Billion On AI. Investors Aren’t Sold Yet And Its Stock Fell.

Alibaba shares fell sharply in Hong Kong on Monday after the company priced a HK$80 billion ($10.2 billion) share placement to fund artificial intelligence spending, putting pressure on the stock as investors weighed the dilution from 710 million new shares.

The new shares were priced at HK$112.70 each, an 8.4% discount to Friday’s closing price, and will account for about 3.6% of Alibaba’s enlarged share capital. Alibaba said the placement is expected to close on Aug. 26, with all net proceeds earmarked for its full-stack AI capabilities, including infrastructure.

Alibaba’s Hong Kong shares fell as much as 10.5% after the placement was announced before recovering some of the losses. The transaction is the largest primary follow-on offering by a Hong Kong-listed company and the third-largest globally this year, behind offerings from Alphabet and Intel, Reuters reported.

Despite the drop in the stock, the offering attracted about $28 billion in orders, including roughly $6 billion from long-only and sovereign investors, according to Reuters. Qatar Investment Authority, Norway’s Norges wealth fund and Hillhouse were among the investors, a person familiar with the transaction told the publication.

Alibaba is raising the money after a quarter in which higher spending on computing capacity and AI chips weighed heavily on its bottom line. Net profit fell 75% from a year earlier in the April-to-June quarter, while capital expenditure jumped 75% to 67.68 billion yuan, Reuters noted. The company has already spent nearly half of the 380 billion yuan it committed to AI and cloud infrastructure over three years.

Revenue from AI Cloud and Compute Services rose 45% year over year to $7.1 billion in the June quarter, its fastest growth in 22 quarters, while AI-related product revenue recorded triple-digit growth for the 12th consecutive quarter, according to Alibaba. Adjusted earnings from the cloud segment more than doubled to $830 million.

CEO Eddie Wu has told investors that Alibaba needs additional computing capacity to keep up with demand and expects the company’s AI investments to break even within about three years. That period could fall to 2.5 years as margins improve and Alibaba increases its use of internally developed chips instead of third-party hardware.

Alongside the infrastructure spending, Alibaba launched its Wan3.0 AI video-generation model Monday, adding to a product lineup that includes its Qwen family of large language models, Reuters reported.

Chairman Joe Tsai and Wu bought Alibaba stock following the placement, with Tsai purchasing about HK$80 million worth of Hong Kong-listed shares and Wu buying roughly HK$40 million, according to stock exchange disclosures cited by Reuters. Alibaba shares were trading around HK$112.80 later Monday, close to the HK$112.70 price paid by investors in the placement.