Alibaba Shares Plunge After Announcing $10.2 Billion AI Funding

Alibaba Group Holding shares plunged as much as 10% in Hong Kong on Monday, with investors questioning the justification for its AI spending.

The market reacted negatively to the company's announcement of a major share issue. Alibaba announced a HK$80 billion ($10.2 billion) share placement of newly issued shares to non-U.S. Investors. The company plans to use all net proceeds to invest in its full-stack AI capabilities, including expanding and enhancing its AI infrastructure. Alibaba will issue 710 million new shares at HK$112.70 apiece, compared to Friday's closing price of HK$123.

Shares were last trading 8.4% lower at HK$112.7. On Monday, Alibaba officially rolled out its latest AI video generation model, Wan3.0, which can generate 30-second videos from various documents and web pages. A public beta version of Wan3.0 launched on August 6. The share placement is expected to close on Wednesday. Alibaba reported a 75% drop in profit for the June-quarter, attributing it to heavy AI spending, with capital expenditure jumping 75% to 67.7 billion yuan.

Vey-Sern Ling, senior equity advisor at UBP, stated last week that Alibaba is well-positioned for AI growth due to its cloud computing arm and strong AI model, though profits might weaken and capital expenditure might rise in the near term.