Alibaba Launches Major Share Placement for AI Development
On Sunday, China’s Alibaba announced an impressive HK$80-billion (about $10.2 billion) share placement aimed at funding its ventures in artificial intelligence.
This move, if successful, would establish the largest primary follow-on offering ever recorded by a company listed in Hong Kong.
Moreover, it would position itself as the third largest primary follow-on share sale globally this year, following those of Alphabet and Intel. Quite a remarkable feat.
Alibaba intends to channel 100% of the proceeds into enhancing its “full stack” AI capabilities. This includes areas like chip development, infrastructure, and the creation and implementation of AI models. It’s a substantial commitment, really.
According to a term sheet reviewed by Reuters, Alibaba plans to sell 710 million ordinary shares priced at HK$112.70 each, which reflects a 3.6% discount from its latest closing price. Interesting decision there, right?
In its announcement regarding the $10.2 billion share placement, Alibaba chose not to elaborate on how the investments would be distributed across different areas within AI.
They basically didn’t provide any comments beyond what was required by regulatory disclosure.
Just last week, Alibaba shared its financial results for the quarter spanning April to June. They reported having already consumed nearly half of their three-year capital expenditure investment plan. The anticipated payback period on these AI-related investments is set to decrease from three years to about 2.5 years due to an increase in demand. That’s quite a shift!
However, Alibaba’s net profit for this quarter fell by 75% compared to the same period last year, largely due to the aggressive ramp-up in AI-related expenses.
“To capture future growth, we must first invest in the necessary compute capacity,” CEO Eddie Wu mentioned during an earnings call. A reasonable point, I think.
Investor interest in the share offering has been substantial, with support from various sovereign wealth funds, according to sources who preferred to remain anonymous given the non-public nature of the information.
Due to high demand, Alibaba increased the size of the offering, as indicated by insiders. Interesting how that works, isn’t it?
For this offering, Alibaba selected Morgan Stanley, HSBC, UBS, and CICC as joint bookrunners, according to one source familiar with the proceedings. They didn’t respond immediately to inquiries for comments.
It’s worth noting that this share placement was not registered under U.S. securities laws. Consequently, American investors won’t be eligible to participate, Alibaba has clarified.
Since 2022, the rapid growth in AI has led to massive capital expenditures on infrastructure and data centers in both the U.S. and China.
In fact, the four biggest U.S. tech companies—Microsoft, Amazon, Alphabet, and Meta—are projected to spend around $725 billion on capital expenditures by 2026, mostly focusing on AI-related data centers, chips, and cloud infrastructure. That’s a staggering figure!
