Key Takeaways:
Alibaba's record HKD 80 billion share placement fully funds its AI capital spending through fiscal 2027, S&P said.
Alibaba's HKD 80 billion share placement — the largest follow-on offering by a Hong Kong-listed company — fully covers its AI capital spending shortfall through fiscal 2027, according to S&P Global Ratings, which maintained its credit view on the e-commerce and cloud giant.
"The placement will be sufficient to fully cover the company's cash shortfall through the fiscal year ending March 31, 2027," S&P said, projecting Alibaba's 2026 capital expenditure at RMB 160 billion, up from RMB 127 billion in 2025.
The company sold 710 million ordinary shares at HKD 112.70 each, a 3.6 percent discount to Friday's Hong Kong close of HKD 123, with 100 percent of net proceeds earmarked for "full stack" AI capabilities spanning chips, infrastructure, and model development. Alibaba reported first-quarter adjusted net profit of RMB 20.72 billion, down 38 percent year-on-year and missing estimates, while reported net profit fell 75 percent as AI-related spending surged. Tencent and Alibaba's combined quarterly capex exceeded RMB 120 billion, nearly a quarter of their respective revenues.
The financing arrives as Alibaba accelerates AI monetization across large language models, cloud services, and computing chips, while S&P expects the company to preserve capital by adjusting shareholder returns, cutting Quick Commerce subsidies, and divesting non-core assets — including its gaming unit Lingxi Interactive Entertainment. The placement is expected to complete August 26, followed by a 90-day lock-up period.
Alibaba shares fell 9 percent in Monday's Hong Kong session after the placement was announced, while the broader market absorbed the supply. Southbound investors bought HKD 2.184 billion of Alibaba shares on August 24 — the largest net purchase among HK-listed stocks — even as the stock dropped 8.54 percent. The deal ranks as the world's third-largest primary follow-on share sale this year after Alphabet and Intel, according to Reuters. Demand was strong, with sovereign wealth funds among the buyers, two people familiar with the matter said.
Morningstar trimmed its fair value estimate for Alibaba by 3 percent following the placement, citing dilution from the new shares. Michael Burry, the investor known for shorting U.S. housing before the 2008 crisis, said he cannot support Alibaba's massive financing and would not re-enter the stock until it falls by half. Alibaba's ADRs have fallen 18.6 percent year-to-date, while its Hong Kong-listed shares are down 13.9 percent.
Capex Race Intensifies Among Chinese Tech Giants
S&P expects Alibaba's higher spending to include AI computing infrastructure, cloud services, and user acquisition costs for its Qwen AI applications. The rating agency projected losses in Quick Commerce to gradually narrow over several quarters. Revenue over the next 12-24 months will still derive largely from existing channels, including cloud infrastructure revenue growth and enhanced e-commerce engagement among existing users.
The placement's impact extends beyond Alibaba. The deal weighed on the broader Hong Kong market, with Tencent down 3.72 percent and SMIC down 7.93 percent on August 24. Galaxy Securities noted that Hong Kong stocks are emerging from suppression by a strong U.S. dollar and high U.S. Treasury yields, with global capital rotating from dollar-denominated assets. However, rising U.S. Treasury yields directly suppress Hong Kong stock valuations, particularly for technology growth stocks that rely on distant cash flows.
The last time Alibaba raised capital at this scale was its 2019 Hong Kong secondary listing, which raised approximately HKD 101 billion. That deal preceded a period of significant share price appreciation before the regulatory crackdown of 2021. The current placement differs in that proceeds are earmarked entirely for AI infrastructure rather than general corporate purposes, reflecting the intensifying capex race among Chinese tech giants competing with global players like Nvidia and Microsoft in the AI infrastructure buildout. The outcome of this bet will determine whether Alibaba can convert its massive AI investment into sustainable revenue growth, or whether the dilution and margin pressure erode shareholder value in the near term.
This article is for informational purposes only and does not constitute investment advice.
