China's Alibaba Group is pursuing a share sale worth HK$80 billion (about 14 trillion won) to fund artificial intelligence development. The offering is set to become the largest share sale ever by a company listed in Hong Kong. It is also on track to rank as the third-largest such offering among global companies this year, after Alphabet and Intel.
According to Reuters, Alibaba is carrying out the share sale by offering 710 million common shares at HK$112.70 each on the 23rd, local time. The selling price represents a 3.6% discount to the recent closing price, Reuters added.
A person familiar with the matter told Reuters that Alibaba's share sale drew strong demand from investors, including sovereign wealth funds. The sources added that Alibaba expanded the size of the offering after the subscription was oversubscribed. Morgan Stanley, HSBC, UBS and China International Capital Corporation (CICC) served as joint bookrunners for the offering. However, Alibaba said the share sale is classified as an offshore transaction from the United States, meaning U.S. investors cannot participate.
Alibaba said it plans to invest all of the net proceeds from the share sale into strengthening its "full-stack AI capabilities," which include the development and deployment of semiconductors, infrastructure and AI models. The company did not disclose detailed investment plans.
Net Profit Falls 75% on Surging Capital Spending, Yet "Investment Must Come First"
Last week, Alibaba reported its second-quarter results, saying it had already spent nearly half of its three-year capital expenditure (CAPEX) plan. The company cited the expansion of computing resources and rising prices of various chip components as the causes of the surge in capital spending. Alibaba's second-quarter net profit fell 75% from a year earlier as it sharply increased AI-related capital spending, and its free cash flow came in at negative 44.67 billion yuan.
Wu Yongming, Alibaba's chief executive officer, said during the earnings conference call that there is an industry consensus that the shortage of AI computing power will not change significantly before 2030, and estimated that the Alibaba Cloud unit could recover its AI computing power investment within two and a half to three years. The CEO stressed, "To capture future growth, capital investment to build the necessary computing power must come first." Last year, Alibaba announced plans to invest at least 380 billion yuan (78.48 trillion won) in AI and cloud infrastructure over the following three years.
The global AI boom since 2022 has driven astronomical capital spending on infrastructure and data centers around the world, including in the United States and China. The four major U.S. hyperscalers — Microsoft, Amazon, Alphabet and Meta — are expected to make combined capital expenditures totaling $725 billion (1,006.3 trillion won) this year, most of which will be invested in AI data centers, semiconductors and cloud infrastructure.
Some analysts say the AI arms race has intensified to a level that the vast majority of companies can no longer afford. The quarterly capital spending of other Chinese Big Tech firms such as Baidu and Kuaishou stands at 6 billion to 8 billion yuan, just one-tenth that of Alibaba and Tencent. Tencent, which along with Alibaba is considered one of the two pillars of Chinese Big Tech, also swung to negative free cash flow of 13.8 billion yuan due to its massive investment.
